TRADED OPTION Meaning and
Definition
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A traded option is a type of financial derivative instrument that grants its holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified period. These options are actively bought and sold on regulated exchanges, such as the Chicago Board Options Exchange (CBOE), providing investors a way to hedge against risks, speculate on price movements, and generate potential profits.
A traded option includes two parties: the buyer or holder of the option, and the seller or writer of the option. The buyer pays a premium to the seller in exchange for the right to exercise the option at a later date if desired. This premium reflects factors such as the intrinsic value (the difference between the option's strike price and the market price of the underlying asset) and the time value (the potential for the option to become in-the-money before expiration).
Traded options are available for various financial assets, including stocks, bonds, commodities, and indices. They are characterized by their standardized terms, such as the expiration date, strike price, and contract size, which are determined by the exchange to ensure liquidity and transparency in the market.
Unlike over-the-counter options, traded options can be easily bought or sold during regular market hours, providing investors with flexibility and marketability. Profit or loss from trading options is determined by the difference between the option's premium at purchase and its value upon exercise or expiration. It's important for investors to thoroughly understand the risks and dynamics of options trading before participating in this complex market.
Common Misspellings for TRADED OPTION
- rraded option
- fraded option
- graded option
- yraded option
- 6raded option
- 5raded option
- teaded option
- tdaded option
- tfaded option
- ttaded option
- t5aded option
- t4aded option
- trzded option
- trsded option
- trwded option
- trqded option
- trased option
- traxed option
- traced option
- trafed option
Etymology of TRADED OPTION
The term "traded option" is derived from the combination of two words: "trade" and "option".
The word "trade" comes from the Middle English word "traden" and Old English word "tradian", which mean "to carry on traffic, to barter, to exchange". It originated from the Low German word "traden" and the Danish word "trade", both meaning "to trade" or "to traffic".
The word "option" comes from the Latin word "optio", which means "act of choosing" or "power of choosing". It was originally used in specific military contexts to refer to the power of selecting soldiers or recruits. Over time, it came to be used more broadly to indicate the power of choosing among several alternatives.
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