Options

DEFINITION of Options

Options are instruments that belong to the derivatives family, which means its price is derived from something else. The price of an Option is intrinsically linked to the price of an underlying stock.

WHAT IT IS IN ESSENCE

Options are the type of derivative financial instruments (security). They are contracts that grant the right but not the obligation, to buy or sale of the underlying asset.
To which they relate at the price indicated in the option contract until a certain date. They can be issued on the basis of other financial instruments, financial non-material or real property. But behind each option must stand the asset to which the option is related.
There are historical findings that confirm their use during the Antiquity period. The first options came from ancient Greece to speculate on the olive harvest.
But the fact is that trade of this derivative become popular in the last 50 years.
The most significant event that enabled their popularization was the establishment of the first arranged stock exchange option in Chicago in the year 1973.
They came under the name of the Chicago Board of Options.
Since then, a number of stock options have been established in the US and around the world.

HOW TO USE

They are attractive instruments to trade in because of the higher returns and fewer risks involved. An option gives the right to the holder to do something, with the ‘option’ of not to exercise that right.
This way, the holder can restrict his losses and multiply his returns.
However, in reality, they are a very complex instrument to trade. That is because options pricing models are quite mathematical and complex.
They are a very useful financial instrument because of their characteristics.
They offer investors a range of options. Hence, they can be used as an instrument for speculation. Also, for the protection and management of market risks (hedging). Or for arbitration.
In this way to any investor in accordance with its goal of trading, current market position, expectations, and preferences, according to risk and personal preferences, they can create the desired position.
The right to buy is a call option and the right to sell is a put option.