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What are Options ?

Options are Derivative instruments.

Derivatives are financial instruments derived from other primary financial instruments or securities. These instruments are treated as contracts and thus are time specific.

An Option is a derivative of shares. An Option contract is created out of an underlying security and such a contract itself will be traded for a value.

An Option contract gives the holder of such a contract a right to buy or sell the underlying shares at a specified price called Strike Price whenever the holder of such a contract decides to exercise the Option Contract.

To purchase such a contract an investor has to pay a price called Premium.

When such a contract is sold by an investor he or she receives Premium.

This is an advanced concept in Investing that may not be suitable for all kinds of investors.

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