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CPP Investments | Investissements RPC
What is an option? Why do you need to know this definition? The MoneySense Glossary is your resource for learning and understanding financial terms.
An option is a contract to buy or sell a security for a specific price, called the strike price, on or before the option’s expiration date. Options are available for individual stocks, stock indexes, commodities and other securities. They trade on stock exchanges and can be bought and sold both through brokers and self-direct investing platforms.
Call options grant their holders the right to buy the underlying investment at the strike price. Put options permit their holders to sell at the strike price. If options are not exercised, they expire worthless on their expiration dates.
Options are referred to as derivative securities because their value is derived from the prices of other securities, the underlying stocks, commodities or other assets.
Example: “Amy bought a call option on a particular stock that gave her the right to buy 1,000 shares at $35 per share on or before May 30. The stock price rose to $39 per share, so she exercised the option.”
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