- Financial Advisory
- Financial Dictionary
In finance, a contract that gives someone the right (but not the obligation) to buy or sell an asset at an agreed price on or before the date that the option expires.
An option to buy an asset at an agreed price is of course valuable if the market value of the asset rises beyond the agreed price before the option expires. Then the party with the option can buy it at the agreed, lower price, and immediately sell it at the market price, realizing a profit. For this reason options to buy can be seen as a way of betting that the price of something will increase from where it is currently, without the full expense of actually buying the asset.