Option (finance)

An option in finance is a contract allowing a buyer the right to exercise, to receive the underlying asset at a specified time, and price. The seller, or counterparty, is responsible for delivering the asset, if the contract were to be exercised. The premiums are owed to the seller of the option, and the seller receives the full premium if the option expires worthless. Contracts are priced using the Black-Scholes Model, which prices the standard deviation (implied volatility) of prices, time decay, and in some cases, dividends into the premium. Contracts that are like options have been used since ancient times.

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Category:Finance