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        What is an Option?

        Views 59K2023.10.31
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        Key Takeaways

        • An option is a contract that gives its holder the right to buy or sell an underlying asset at a certain price for a limited time. 

        • There are five basic factors of a standard option: the underlying asset, premium, strike price, contract type, and expiration date.

        Understanding

        An option is a contract that gives its holder the right to buy or sell an underlying asset at a certain price for a limited period. There are five basic factors of a standard option contract:

        1. Underlying asset. An Option's price is derived from the underlying asset that it tracks. The underlying asset could be stocks, market indices, exchange-traded funds, bonds, currency, interest rates, or futures contracts.

        2. Premium. An option premium is a price paid by the buyer to the seller for an option contract or the current price of an option contract that has yet to expire.

        3. Strike price. The strike price is the price at which the holder of the option contract may buy or sell the underlying asset. It is also known as the exercise price. 

        4. Contract type. There are two types of options: calls and puts. A call gives the buyer the right to buy the underlying asset at the strike price for a limited period. Conversely, puts give the buyer the right to sell the underlying asset at the strike price for a specified period. 

        5. Expiration date. This is the date on which the option expires. If an option has not been exercised before its expiration, it ceases to exist— that is, the option holder no longer has any rights, and the option no longer has any value. The style of an option refers to when that option is exercisable. The most common styles are the American style and the European style. The American style option may be exercised at any time before and including the day of expiration. The European style option is exercisable only on its expiration date.

        Options trading entails significant risk and is not appropriate for all customers. It is important that investors read Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Opening new options positions close to or on their expiration date comes with substantial risk of losses for reasons that include potential volatility of the underlying security and limited time to expiration. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount. Supporting documentation for any claims, if applicable, will be furnished upon request.

        This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal. Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeliness for any particular purpose of the above content.

        Moomoo is a financial information and trading app offered by Moomoo Technologies Inc.

        In the U.S., investment products and services available through the moomoo app are offered by Moomoo Financial Inc., a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC) and a member of Financial Industry Regulatory Authority (FINRA)/Securities Investor Protection Corporation (SIPC).

        In Singapore, investment products and services available through the moomoo app are offered through Moomoo Financial Singapore Pte. Ltd. regulated by the Monetary Authority of Singapore (MAS). Moomoo Financial Singapore Pte. Ltd. is a Capital Markets Services Licence (License No. CMS101000) holder with the Exempt Financial Adviser Status. This advertisement has not been reviewed by the Monetary Authority of Singapore.

        In Australia, financial products and services available through the moomoo app are provided by Futu Securities (Australia) Ltd, an Australian Financial Services Licensee (AFSL No. 224663) regulated by the Australian Securities and Investment Commission (ASIC). Please read and understand our Financial Services Guide, Terms and Conditions, Privacy Policy and other disclosure documents which are available on our website https://www.moomoo.com/au.

        In Canada, order-execution only services available through the moomoo app are provided by Moomoo Financial Canada Inc., regulated by the Canadian Investment Regulatory Organization (CIRO).

        In Malaysia, investment products and services available through the moomoo app are offered through Futu Malaysia Sdn. Bhd. ("Moomoo MY") regulated by the Securities Commission of Malaysia (SC). Futu Malaysia Sdn. Bhd. is a Capital Markets Services Licence (License No. eCMSL/A0397/2024) holder. This advertisement has not been reviewed by the SC.

        Moomoo Technologies Inc., Moomoo Financial Inc., Moomoo Financial Singapore Pte. Ltd., Futu Securities (Australia) Ltd and Moomoo Financial Canada Inc., and Futu Malaysia Sdn. Bhd. are affiliated companies.

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