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In finance, an option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option.
In finance, a foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument that gives the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. [1] See Foreign exchange derivative. [2]
In finance, a put or put option is a derivative instrument in financial markets that gives the holder (i.e. the purchaser of the put option) the right to sell an asset (the underlying), at a specified price (the strike), by (or on) a specified date (the expiry or maturity) to the writer (i.e. seller) of the put.
But the key thing to know about derivatives is that they are a financial contract whose value is derived from the value of another security, maybe even another derivative. For example, options are ...
The price of this option is influenced by multiple factors, including the stock’s current price, the option’s strike price, time to expiration and implied volatility.
Derivatives trading of this kind may serve the financial interests of certain particular businesses. [26] For example, a corporation borrows a large sum of money at a specific interest rate. [27] The interest rate on the loan reprices every six months. The corporation is concerned that the rate of interest may be much higher in six months.