Share Option

A share (or stock) option is a financial derivative instrument that gives holders the right but not the obligation to buy or sell a stock at an agreed date in the future. The critical components of an option are its premium (the price at which an option can be bought); the strike price (the price at which the option starts to have exercise value); and the expiry date (the date on which the contract terminates, which defines its time value). American style options can be exercised at any time between initiation and expiry. European style options can only be exercised at expiry. Call options have a strike price above the price of the underlying stock at the start of the options contract; put options have a strike price below the current price.