Now the value of the house drops to zero and she obviously decides not to exercise the option to buy the house. How Options Work Review 1. Options give you the right to buy or sell an underlying instrument. Options when bought are done so at a debit to the buyer. Options when sold are done so by giving a credit to the seller.
Options are available in several strike prices representing the price of the underlying instrument.
The cost of an option is referred to as the option premium. The price reflects a variety of factors including the current price of the underlying asset, the strike price of the option, the time remaining until expiration, and volatility. Options are not available on every stock. There are approximately 2,200 stocks with tradable options. Each stock option represents 100 shares of a company's stock.