Define: Option Contract

UK Accounting Glossary

Definition: Option Contract



Advertisement



Full Definition of Option Contract


An option contract, sometimes simply called an option, is an exchange-traded derivative instrument that gives the option holder the right, but not the obligation, to trade the underlying asset for a specific price. Electing to make the trade is known as exercising the option contract. If the option contract is a call option, the option holder can buy the underlying asset for the strike price. If the option contract is a put, the holder is entitled to sell the underlying upon exercise. An option contract always has an expiration date. Depending upon whether the option contract is an American option or a European option, exercise may be possible either any day up to or only on the expiration date, respectively. The counterparty to the option holder for an option contract trade is known as the option writer.


Advertisement




Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/option-contract/
Modern Language Association (MLA):
Option Contract. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. March 31, 2020 https://payrollheaven.com/define/option-contract/.
Chicago Manual of Style (CMS):
Option Contract. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/option-contract/ (accessed: March 31, 2020).
American Psychological Association (APA):
Option Contract. PayrollHeaven.com. Retrieved March 31, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/option-contract/

Definition Sources


Definitions for Option Contract are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 6th February 2020.