TeachMeFinance.com - explain option
option -- an agreement granting the right to buy or sell property, or to use it in some fashion, for a stated price within a stated period of time. In investments, an option refers to a contract granting the right to buy or sell a security or a commodity at a set price within a stipulated time.
Option -- Property bought or sold to be received or delivered
by the buyer or seller in accordance with the terms agreed
upon. Sometimes the buyer pays for the privilege of calling
for the delivery of the property within a certain time if he so
wills, but he is not obliged to take it; sometimes the seller
pays for the privilege of delivering the property.
In speculation an option is the purchased privilege of either
receiving or delivering a specified amount of anything (as stocks , grain, cotton, coffee, etc.) at a specified price within a
In stocks bought on buyer's option the buyer may, when the
option is for four days or more, demand delivery of the stock
on any day within the time specified on one day's notice to the
seller. In stocks sold on seller's option, when the option is
for four days or more, the seller may deliver the stock to the
buyer on any day within the time specified on one day's notice
to the buyer.
When a dividend becomes due on a stock during the
pendency of an option on it the dividend is collected by the
seller of the stock, who holds it, allows interest on it and pays
the dividend, with the interest on it, to the buyer on the settlement
of the contract. When an option on a stock matures
during the closing of transfer books the seller of the stock
gives to the buyer of the stock a due bill for the amount of the
dividend which is payable when the dividend is paid, but the
due bill does not bear interest.
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