What are Options (finance)

A derivative in which the buyer has the right (but not the obligation) to buy/sell a given financial instrument at a certain price at a certain time, while the issuer has the obligation to sell it. Due to their design giving only a right and not an obligation to the buyer, their purchase is a good way to hedge risk in the case of deferred currency payments.

 

What financial instruments are options written on?

The most popular are options on exchange rates or stocks. Options on interest rates or indexes are also common.

What are options used for?

Initially, options were used primarily as a type of risk hedging. The ability to buy, for example, a currency at a guaranteed rate, is a good hedge in case, for example, we have a scheduled payment in a foreign currency in the future. Currently, however, options very often play a speculative role.

What are call options?

A call option, otherwise known as a call option, is a contract whose writer assures the buyer the right to purchase a specific asset at a fixed price within a specified period of time.

What are put options?

A put option, otherwise known as a put option, is a contract whose writer assures the buyer the right to sell a specified asset at a fixed price within a specified period of time.

How are binary options different from options?

Binary options are a specific type of options, being a tool used mainly for speculative purposes. Unlike options, which by definition are an instrument that protects us from risk, binary options are instruments with high investment risk.

Where can options be purchased?

Options can be purchased from most brokers. They are often issued by various financial institutions and are even listed on the Warsaw Stock Exchange.

What is a long position in options?

Taking a long position in the case of options simply means buying a put option – which is equivalent to getting the right to sell on a certain date, a certain asset at a certain price.

What is a short position in options?

Taking a short position in the case of options simply means writing a put option – which is equivalent to a commitment to buy on a certain date, a certain asset at a certain price.