What is Option (finance)?
[[File:European Call Surface.png|thumb|Time decay over time. The option's value decreases as it gets closer to expiry.]] An '''option''' in [[finance]] is a [[contract]] allowing a buyer the right to exercise, to receive the underlying asset at a specified time, and price.<ref>{{Cite web|title=What Is a Call Option?|url=https://www.investopedia.com/terms/c/calloption.asp|access-date=2022-04-19|website=Investopedia|language=en}}</ref> The seller, or counterparty, is responsible for delivering the asset, if the contract were to be exercised. The premiums are owed to the seller of the option, and the seller receives the full premium if the option expires worthless. Contracts are priced using the [[:en:Black–Scholes_model|Black-Scholes Model]], which prices the [[standard deviation]] (implied volatility)<ref>{{Cite web|title=Options Volatility {{!}} Implied Volatility in Options - The Options Playbook|url=https://www.optionsplaybook.com/options-introduction/what-is-volatility/|access-date=2022-04-19|website=www.optionsplaybook.com}}</ref> of prices, time decay,<ref>{{Cite web|title=Theta (Θ)|url=https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/theta-θ/|access-date=2022-04-19|website=Corporate Finance Institute|language=en-US}}</ref> and in some cases, [[Dividend|dividends]] into the premium. Contracts that are like options have been used since ancient times.<ref>{{Cite web|url = http://www.investopedia.com/articles/optioninvestor/10/history-options-futures.asp|title = History of Financial Options - Investopedia|date = May 13, 2010|access-date = Jun 2, 2014|website = Investopedia|last = Abraham|first = Stephan}}</ref> ==References== {{reflist}} {{stub}} {{Financial markets navigation}} [[Category:Finance]]