Unicorn Academy
EN

Unicorn Academy › The options markets

The options markets · lesson 1 of 20

What an option is

An option is a contract that gives its buyer the right, but not the obligation, to buy or sell an asset at a set price by a certain date. The asset, called the underlying, is usually a share, an index or an ETF.

To have this right the buyer pays a sum up front, the premium. If exercising is not worthwhile at expiry, the buyer lets the option expire and loses only the premium.

Exchange-listed options have existed in the United States since 1973, the year the first dedicated exchange opened, in Chicago. They are standardised contracts, guaranteed by a clearing house.

Questions

1. What does an option give its buyer?

The right, but not the obligation, to buy or sell at a set price

The buyer can choose whether to exercise.

2. What does the buyer lose by letting the option expire?

Only the premium paid

The premium is the cost of the right.

3. Since when have exchange-listed options existed in the United States?

Since 1973

In 1973 the first dedicated exchange opened in Chicago.

Next lesson: Calls and puts

Continue from lesson 4

The options markets: an online course in 20 short lessons with quizzes and a final certificate, on Unicorn Academy.

Download on the App StoreComing soonGet it on Google PlayComing soon

This page in other languages