After three months, you have the money and buy the clock at that price.īut maybe it’s discovered that the clock was owned by Theodore Roosevelt, which makes it worth $10,000. You talk to the owner and he agrees to sell it at that price in three months with a specific expiration date, but you have to pay $100 for him to agree to the contract. But you won’t have the cash for another three months.
To make this clearer, let’s use a real world analogy… Let’s say you’re shopping for an antique grandfather clock and find the perfect one at the right price: $3,000. When the buyer of a long option exercises the contract, the seller of a short option is "assigned", and is obligated to act. An option that gives you the right to buy is called a “call,” whereas a contract that gives you the right to sell is called a "put." Conversely, a short option is a contract that obligates the seller to either buy or sell the underlying security at a specific price, through a specific date. There is no obligation to buy or sell in the contract, but simply the right to “exercise” the contract, if the buyer decides to do so. Account Types & Investment Products OverviewĪ long option is a contract that gives the buyer the right to buy or sell the underlying security or commodity at a specific date and price.Contribution and Eligibility Calculator.Investment Management Services Overview.
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