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Need to Know Facts About Options Background

Options Background

The stock market fluctuates a great deal on a regular basis, and consequently, this is how many investors lose substantial financial assets. In order to protect against the fluctuation in stock value, many investors choose to purchase an option contract.

An option contract is a financial agreement between an investor and a writer, in which the investor obtains permission to purchase or sell a specified quantity of shares for a designated value at some point in the future. The option contract will specify an expiration date by which the buyer must utilize his/her contract. If an investor fails to redeem the terms of the contract by the specified date, the contract will be void.

If an individual wishes to purchase an options contract, he/she will be required to deliver a premium fee to the seller. In exchange, the investor will be permitted to sell or purchase shares of stock despite fluctuation in the stock market. There are two primary choices in the realm of options trading: call options and put options.

NEXT: Read How to Exercise Options in An Option Contract

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