An option is a contract giving an investor the right, but not the obligation, to buy (”call”) or sell (”put”) a fixed amount of shares (usually 100 shares) of a given stock or index and commodity at a specified price within a limited time period – usually three, six, or nine months.
If you buy a call option, you’ll benefit from the stock’s price going up. If you buy a put option, you’re banking on the stock’s price going down by an amount that will provide a profit when you sell the option.
Call and put options can be placed on most publicly traded companies and offer investors an alternative to simply buying shares of stock, which will only produce returns if the stock goes up.
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