An option is simply the right to buy (a 'call' option) or sell (a 'put' option) a quantity of any asset by an agreed expiry date for a fixed ('strike') price.
As with insurance policies, the buyer of an option pays a non-refundable premium to the seller for the right to either exercise the option before it expires, or abandon it. So, someone who holds gold and is worried about the price falling but doesn't want to sell in case they are wrong could buy a threemonth 'put' option instead.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Six investment funds for beginnersBeginner investors can use funds to start building their portfolio, making it easy to access global trends while managing their risk level. Here’s six funds that beginner investors can consider.
-
Farming isn't for the faint-hearted – and isn't profitableOpinion Farming may look appealing, but turning a profit is extremely hard. No wonder many farmers are attracted to the Sustainable Farming Incentive, says Max King
