Derivatives can be a very risky investment if not used properly and it is therefore highly recommend that one seek independent financial advise before buyin g. Convertible, callable and redeemable securities are related to options and will be discussed in the convertible securities section of the site. There consist of two types of options . . . One key characteristic of options is that they will expire at a given point in time. As the name implies, options do not have to be exercised and are allowed to expire without any recourse to the holder. The holder will only lose their original cost to buy the option.
Options can be either European or American options.
A European option can only be exercised on the date specified by the option. An American option can be exercised on or before the date specified on the option. Options will also have an open interest, which is the amount of option contracts in existence at a point in time. For more on how to read option quotes, go to derivative quotes . Options can either be in the money or out of the money.