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Derivatives




Equity Option


Typically, an exchange-listed option (first introduced in 1973) in which the underlying asset is an equity instrument such as a common stock. This option grants the holder, in exchange for a premium, the right, but not the obligation, to purchase from (in the case of a call) or to sell to (in the case of a put) the writer a specified stock or group or index of stocks at a preset exercise price, at specified time(s) or within a specified period of time.

Equity options may be settled physically (by delivering or taking delivery of the underlying stock) or on a payment-of-differences basis under which the seller would be required upon exercise to pay the buyer the amount by which the value of the underlying stock(s) exceeds (in the case of a call) or is lower than (in the case of a put) the exercise price at a specified time or times. Among the many equity option products offered by exchanges are individual equity options, index options, sector index options, index-linked notes, international index options, etc.

This option is alternatively known as a stock option.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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