What Are Options?
The Short Explanation:
Options are a type of a derivative financial contract which gives the option for the holder of the contract to either sell or buy an asset within a specified time frame for a predetermined price. An option that gives the holder of the contract the right to buy an asset is called a Call Option. An option that gives the holder of the contract the right to sell an asset is called a Put Option. The most you can lose with options is the premium you have paid for the option contract.
Options contracts are typically for 100 shares of the underlying security. So, if an option would have a premium of 20p per share, one option contract would cost £20. (100 x £0.20)
There are multiple reasons to use Options for traders and investors, but for example they enable you to hold a leveraged position in an asset that would otherwise cost more to obtain if you were to e.g. buy the share outright.
