e. An option holder is not entitled to receive dividends unless he or she exercises
their option before the stock goes ex dividend.
, an option
is a derivative financial instrument
that specifies a contract between two parties for a future transaction on an asset at a reference
price (the strike).
The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller
incurs the corresponding obligation to fulfill the transaction. The price of an
option derives from the difference between the reference price and the value of
asset (commonly a stock
, a bond
, a currency
or a futures contract
) plus a premium based on the time remaining until the expiration of the option. Other types of options
exist, and options can in principle be created for any type of valuable
An option which conveys the right to buy something at a specific price is called a call
; an option which conveys the right to sell something at a specific price is called a put
. The reference price at which the underlying asset may be traded is called the strike price
or exercise price. The process of activating an option and thereby trading the underlying at the agreed-upon
price is referred to as exercising
it. Most options have an expiration date
. If the option is not exercised by the expiration date, it becomes void and worthless.