Introduction to Stock Options

Mint Message

Mint Message is here to give people reading us another basic lesson on information about the stock market to help you understand things about modern finance. One thing that people have trouble understanding is stock options.

So, what is a stock option? A stock option (something that is also known as an equity option) is a form of financial instrument that confers the right of a person to buy or sell an underlying asset (like a stock) at an agreed-upon price and date. There are two types of stock options that we will go over in this basic article that can hopefully help someone who doesn’t know much about the stock market understand how this basic financial tool works.

The first type of stock option we will be going over is a call option. A call option is a form of stock purchasing that gives the buyer the right to buy a group of assets at a specified “strike” price. The value of a call option increases in value if the market price goes up. Basically, with a call option, you are betting on the price of the stock you will be getting the right to hold to go up or rise sometime in the near future. Meanwhile, the other form of option is known as a put option. This option gives the purchaser the right to sell assets at a specified price with you betting that the price of a stock will fall and earning money if the price of said stock goes down over time.

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