📈 Options Contracts
📚 US Capital Private Bank Knowledge Base
📖 Definition
An Options Contract is a financial derivative that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price (strike price) before or on a specified expiration date. There are two main types: Call Options (right to buy) and Put Options (right to sell).
⚙️ How It Works
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Call Option: The buyer can purchase the underlying asset at the strike price.
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Put Option: The buyer can sell the underlying asset at the strike price.
The seller (writer) of the option has the obligation to fulfill the transaction if the buyer exercises the option.
📝 Key Features
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🛡️ Right Without Obligation: Buyers have flexibility without mandatory execution.
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💵 Premium: Buyers pay an upfront cost (premium) to purchase the option.
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⏰ Expiration Date: Options have a finite lifespan and expire worthless if not exercised.
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🔄 Exercise Styles: American options can be exercised anytime before expiration; European options only at expiration.
✅ Benefits
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🔐 Risk Management: Allows hedging against price fluctuations with limited downside (premium paid).
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💹 Leverage: Control large amounts of the underlying asset with relatively small capital.
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⚖️ Flexibility: Wide range of strategies for income, speculation, and hedging.
⚠️ Risks & Considerations
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💸 Premium Loss: Buyers can lose the entire premium if the option expires worthless.
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⚠️ Complexity: Options require understanding of various factors like volatility, time decay, and strike price.
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📉 Obligations for Sellers: Sellers face potentially unlimited losses if the market moves unfavorably.
🔎 Related Terms
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📅 Strike Price: Price at which the option can be exercised.
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⏳ Expiration Date: Date after which the option is no longer valid.
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📊 Implied Volatility: Market expectation of future price fluctuations.
📚 References
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📄 Options Clearing Corporation (OCC) – Options Education
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🌐 Investopedia – Options Basics
📞 Contact US Capital Private Bank
📧 Email: [email protected]
🌐 Website: https://uscapitalprivatebank.com