Definition of option
An option is a right, but not an obligation to buy or sell a fixed quantity of a commodity, currency or security at a fixed date in the future at a particular price. An option to buy is known as a call option and an option to sell is known as a put option. The purchaser can either exercise the option or allow it to lapse if unprofitable, in which case the loss is limited to the initial purchase price of the option, which is called the premium.
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