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New STOCK OPTIONS: An Authoritative Guide to Incentive and Nonqualified Stock Options
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An equity option is a contract which gives its holder the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) shares of the underlying security at a specified price (the strike price) on or before a given date (expiration day).
A Call Option gives the buyer the right, but not the obligation, to purchase the underlying security at the strike price, anytime prior to the options expiration date. The writer (or seller) of the option has the obligation to sell the shares.
Put Option: gives its holder the right to sell( but not the obligation to sell go "short") the underlying futures contract or shares at the strike price on or before the expiration date. The writer (or seller) of the option has the obligation to buy the shares.
Strike Price: The price at which the futures contract underlying a call or put option can be purchased (if a call) or sold (if a put). Also referred to as exercise price.
The strike price determines whether or not an option has any intrinsic value.
The Expiration day for equity options is the Saturday following the third Friday each month. So the third Friday of the month is the last trading day for expiring equity options.
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