What is "Options"?Is that a kind of investment?

Answer 1

An option is a contract to buy or sell some sort of asset (stock, commodity, bond) at a certain price. You can play both sides of the market buy buying calls (stock goes up, you make money) or buying puts (down is good). There is a price that you have to pay for the option and the option expires at a certain time. Its good if you are convinced someting big will happen within a certain amount of time, otherwise you lose all of your money.

Answer 2

It gives the (call) buyer the right but not the obligation to purchase the underlying stock at a predetermined price (the "strike price" ) prior to the option expiration date. The buyer is charged a premium for this right. The (put) seller of the option receives this premium. "Calls" represent the buyers' side the option. "Puts" represent sellers' side of the option.

The buyer's risk is limited to the amount of the premium. The buyer cannot lose any more than what he paid for the premium. The buyer may sell the option for more than he paid for it, less than what he paid for it, exercise the option against the seller or let it expire worthless and receive nothing for the option (losing the premium he paid).

The seller's initial risk participation in the option is limited to what he receives as a premium. Further UNLIMITED risk participation MAY include having the option excerised against him by the buyer requiring the seller to deliver the necessary shares to the buyer REGARDLESS of the market price of the stock.

There is a lot more to options than what I have explained here. This is just an basic answer without going into many specifics.

Answer 3

This article is about options traded in financial markets. For other types of options, see Option.
Options are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security. For example, buying a call option provides the right to buy a specified quantity of a security at a set strike price at some time on or before expiration, while buying a put option provides the right to sell. Upon the option holder's choice to exercise the option, the party who sold, or wrote, the option must fulfill the terms of the contract.[1]

The theoretical value of an option can be determined by a variety of techniques. These models, which are developed by quantitative analysts, can also predict how the value of the option will change in the face of changing conditions. Hence, the risks associated with trading and owning options can be understood and managed with some degree of precision.

Exchange-traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among independent parties. Over-the-counter options are traded between private parties, often well-capitalized institutions, that have negotiated separate trading and clearing arrangements with each other. Another important class of options, particularly in the U.S., are employee stock options, which are awarded by a company to their employees as a form of incentive compensation.

Other types of options exist in many financial contracts, for example real estate options are often used to assemble large parcels of land, and prepayment options are usually included in mortgage loans. However, many of the valuation and risk management principles apply across all financial options.

Answer 4

It is a type of investment and it's basically betting on if a stock will go up or down. It can get pretty complicated though, so I wouldn't adventure into them until you've had a chance to read about how they work. It is a way to make money fast, but again pretty complicated if you are starting from square one.