option

play

noun op·tion \ ˈäp-shən \

Updated on: 26 Jul 2017

Definition of option

1 :an act of choosing

hard to make an option between such alternatives

2 a :the power or right to choose :freedom of choice

He has the option to cancel the deal.

b :a privilege of demanding fulfillment of a contract on any day within a specified time

c :a contract conveying a right to buy or sell designated securities, commodities, or property interest at a specified price during a stipulated period; also :the right conveyed by an option

The ad is for a condo to rent with an option to buy.

d :a right of an insured person to choose the form in which payments due on a policy shall be made or applied

3 :something that may be chosen: such as

a :an alternative course of action

didn't have many options open

b :an item that is offered in addition to or in place of standard equipment

A sunroof is one of the options that you can get with the car.

4 :an offensive football play in which a back (see ¹back 3) may choose whether to pass or run with the ball — called also option play

See option defined for English-language learners

See option defined for kids

Examples of option in a Sentence

You have the option of staying home or coming with us.
He has the option to cancel the deal.
We have a wide range of options available to us.
Menu options at the café include soups, salads, and sandwiches.
Select an option from the drop-down menu.
Filing taxes online is an option for people with Internet access.
I had no option but to start over.
A good option is to do the work yourself.
Employees will each be granted options to buy 1,000 shares of company stock.
The option must be exercised within five years.

Recent Examples of option from the Web

The president dismissed the idea of negotiating with Kim Jong Un’s regime, while Defense Secretary Jim Mattis said the U.S. hasn’t exhausted its diplomatic options.

— katie robertson, Bloomberg.com, "Your Evening Briefing," 30 Aug. 2017
NBKC Bank also lures employees with four weeks of paid vacation per year, flexible scheduling and options to work from home.

— sarah gish, kansascity, "Ten KC companies that spoil employees with unbelievable perks," 30 Aug. 2017
Fans who purchased $25 tickets will have the option of getting a refund or having that money donated to relief efforts.

— drew davison, star-telegram, "Cowboys-Texans preseason game canceled, visitors returning to Houston," 30 Aug. 2017
Both see no options except for a) lashing out angrily and b) cursing their feminine fate while suffering in silence.

— kyle smith, National Review, "Hillary Excuse No. 1,756: Trump Stood Too Close to Me," 28 Aug. 2017
Since 2012, FDA has designated close to 200 drugs as breakthrough therapies, a status that indicates there’s preliminary evidence that an intervention offers a substantial improvement over other options for a serious health condition.

— kai kupferschmidt, Science | AAAS, "All clear for the decisive trial of ecstasy in PTSD patients," 27 Aug. 2017
Greener future Cities: Skylines wants your green for greener options—which is to say,

— hayden dingman, PCWorld, "This week in games: KFC's creepy VR training, Anno 1800 revealed, Brink goes free-to-play," 25 Aug. 2017
There were two options in the freezer: a sleeve of diet ice cream sandwiches and a box of Klondike bars.

— molly young, Bon Appetit, "Halo Top Is the Most Popular Ice Cream in America, and We're Not Mad," 24 Aug. 2017
It’s hard to choose just one restaurant in a town with so many great options (namely: Duryea’s, The Gig Shack, The Crowe’s Nest, Inlet, East by Northeast, St. Peter’s Catch) but Scarpetta Beach at Gurney's Montauk manages to check all the boxes.

— lindsay silberman, Town & Country, "The Perfect Montauk Weekend," 23 Aug. 2017

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'option.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of option

French, from Latin option-, optio free choice; akin to Latin optare to choose

NEW! Time Traveler

First Known Use: circa 1550

See Words from the same year

option Synonyms

Synonyms

accoutrement (or accouterment), adapter (also adaptor), add-on, adjunct, appendage, appliance, attachment, accessory

Related Words

accompaniment, additive, complement, supplement; auxiliary, subsidiary; amenity, doodad, embroidery, extra, filler, frill, incidental, luxury, nonessential, nonnecessity; appurtenances, bells and whistles, equipment, furnishings, habiliment (s), paraphernalia, trappings; adornment, decoration, embellishment, enhancement, garnish, ornament, trim, trimming

Near Antonyms

essential, necessity, requirement, requisite

Synonym Discussion of option

choice, option, alternative, preference, selection, election mean the act or opportunity of choosing or the thing chosen. choice suggests the opportunity or privilege of choosing freely.

- freedom of choice

option implies a power to choose that is specifically granted or guaranteed.

- the option of paying now or later

alternative implies a need to choose one and reject another possibility.

- equally attractive alternatives

preference suggests a choice guided by one's judgment or predilections.

- a preference for cool weather

selection implies a range of choice.

- a varied selection of furniture

election implies an end or purpose which requires exercise of judgment.

- doing a tax return forces certain elections on you

Other Business Terms

amortize, caveat emptor, clearinghouse, divest, due diligence, emolument, green-collar, marque, overhead, perquisite

option

verb

Definition of option

transitive verb

1 :to grant or take an option on

2 :to acquire the exclusive right to use (an author's work) as the basis for a motion picture

the studio optioned the novel for a film

Recent Examples of option from the Web

The Tigers selected the Reininger on Wednesday night after optioning left-handed pitcher Chad Bell back to Toledo.

— george sipple, Detroit Free Press, "Detroit Tigers' Zac Reininger called up, gets to realize his 'dream'," 24 Aug. 2017
Ty Kelly, who was optioned before Friday’s game, is another candidate.

— matt gelb, Philly.com, "Road-weary Phillies lose another game - and Aaron Altherr," 5 Aug. 2017
But that trope has been given a fresh spin by Tal Klein in his debut novel, The Punch Escrow—fresh enough that, even before its release, the book was optioned for a film by Lionsgate.

— sean gallagher, Ars Technica, "Teleportation is murder: Old trope gets new twist in The Punch Escrow," 22 July 2017
Pearson, who wasn’t aware of Purnell’s forthcoming work, said her book was optioned by Hollywood shortly after its publication, too.

— ian shapira, Washington Post, "The Nazis were closing in on a spy known as ‘The Limping Lady.’ She fled across mountains on a wooden leg.," 11 July 2017
Colorado optioned Hanigan to the minor-leagues on Thursday to make room for Murphy.

— nick groke, The Denver Post, "Rockies call-up slugger Tom Murphy and their catching corps is now intact; Carlos Gonzalez sits again," 15 June 2017
On the day the Giants optioned Arroyo, their veteran roster demoted itself further down the National League power rankings.

— andrew baggarly, sacbee, "Giants’ veteran roster keeps taking its lumps, loses series to lowly Phillies," 4 June 2017
To make room for Beltre, the Rangers optioned Drew Robinson to Triple A Round Rock.

— jeff wilson, star-telegram, "Rangers activate Beltre for 2017 debut," 29 May 2017
Your first book, Crazy Rich Asians, has been optioned for a film.

— julia vitale, Vanities, "Crazy Rich Asians Author Kevin Kwan on Finishing His Trilogy and the Movie Adaptation to Come," 18 May 2017

Origin and Etymology of option

see ¹option

NEW! Time Traveler

First Known Use: 1888

See Words from the same year

Other Economics Terms

actuary, compound interest, globalization, indemnity, portfolio, rentier, stagflation, usurer

Financial Definition of OPTION

option

noun

What It Is

A call option gives the holder the right, but not the obligation, to purchase 100 shares of a particular underlying stock at a specified strike price on the option's expiration date.

How It Works

Options are derivative instruments, meaning that their prices are derived from the price of another security. More specifically, options prices are derived from the price of an underlying stock. For example, let's say you purchase a call option on shares of Intel (INTC) with a strike price of $40 and an expiration date of April 16th. This option would give you the right to purchase 100 shares of Intel at a price of $40 on April 16th (the right to do this, of course, will only be valuable if Intel is trading above $40 per share at that point in time). Note that the expiration date always falls on the third Friday of the month in which the option is scheduled to expire.

Every option represents a contract between a buyer and seller. The seller (writer) has the obligation to either buy or sell stock (depending on what type of option he or she sold; either a call option or a put option) to the buyer at a specified price by a specified date. Meanwhile, the buyer of an option contract has the right, but not the obligation, to complete the transaction by a specified date. When an option expires, if it is not in the buyer's best interest to exercise the option, then he or she is not obligated to do anything. The buyer has purchased the option to carry out a certain transaction in the future, hence the name.

As a quick example of how call options make money, let's say IBM stock is currently trading at $100 per share. Now let's say an investor purchases one call option contract on IBM with a $100 strike and at a price of $2.00 per contract. Note: Because each options contract represents an interest in 100 underlying shares of stock, the actual cost of this option will be $200 (100 shares x $2.00 = $200).
Here's what will happen to the value of this call option under a variety of different scenarios:

When the option expires, IBM is trading at $105.
Remember: The call option gives the buyer the right to purchase shares of IBM at $100 per share. In this scenario, the buyer could use the option to purchase those shares at $100, then immediately sell those same shares in the open market for $105. This option is therefore called in the money. Because of this, the option will sell for $5.00 on the expiration date (because each option represents an interest in 100 underlying shares, this will amount to a total sale price of $500). Because the investor purchased this option for $200, the net profit to the buyer from this trade will be $300.

When the option expires, IBM is trading at $101.
Using the same analysis as shown above, the call option will now be worth $1 (or $100 total). Since the investor spent $200 to purchase the option in the first place, he or she will show a net loss on this trade of $1.00 (or $100 total). This option would be called at the money because the transaction is essentially a wash.

When the option expires, IBM is trading at or below $100.
If IBM ends up at or below $100 on the option's expiration date, then the contract will expire out of the money. It will now be worthless, so the option buyer will lose 100% of his or her money (in this case, the full $200 that he or she spent for the option).

Why It Matters

Investors use options for two primary reasons: to speculate and to hedge risk. All of us are familiar with the speculation side of investing. Every time you buy a stock you are essentially speculating on the direction the stock will move. You might say that you are positive that IBM is heading higher as you buy the stock, and indeed more often than not you may even be right. However, if you were absolutely positive that IBM was going to head sharply higher, then you would invest everything you had in the stock. Rational investors realize there is no "sure thing," as every investment incurs at least some risk. This risk is what the investor is compensated for when he or she purchases an asset. When you purchase call options to speculate on future stock price movements, you are limiting your downside risk, yet your upside earnings potential is unlimited.

Hedging is like buying insurance. It is protection against unforeseen events, but you hope you never have to use it. Consider why almost everyone buys homeowner's insurance. Since the odds of having one's house destroyed are relatively small, this may seem like a foolish investment. But our homes are very valuable to us and we would be devastated by their loss. Using options to hedge your portfolio essentially does the same thing. Should a stock take an unforeseen turn, holding an option opposite of your position will help to limit your losses.

Source: Investing Answers

OPTION Defined for English Language Learners

option

play

noun

Definition of option for English Language Learners

: the opportunity or ability to choose something or to choose between two or more things
: something that can be chosen : a choice or possibility
: a right to buy or sell something for a specified price during a specified period of time

OPTION Defined for Kids

option

play

noun op·tion \ ˈäp-shən \

Definition of option for Students

1 :the power or right to choose

Children have an option between milk or juice.

2 :something that can be chosen

Quitting is not an option.

3 :a right to buy or sell something at a specified price during a specified period

His parents took an option on the house.

Law Dictionary

option

play

noun op·tion \ ˈäp-shən \

legal Definition of option

1 :the power or right to choose; also :a choice made or available

2 :a privilege of demanding fulfillment of a contract on any day within a specified time

3 :a contract conveying in exchange for the payment of a premium a right to buy or sell designated securities, commodities, or interests in property at a specified price during a stipulated period; also :the right conveyed by such a contract

decided to exercise his option

— call option

:an option to buy at a fixed price at or within a certain time — compare put option in this entry

— covered option

:an option in which the optionor owns the security or commodity to be conveyed under the option — compare naked option in this entry

— futures option

:an option on futures

— incentive stock option \in-ˈsen-tiv-\

:a stock option granted by a corporation to its officers and employees as supplementary compensation that is subject to special tax treatment under the Internal Revenue Code

— index option

:an option on a stock index

— naked option

:an option in which the optionor does not own the security or commodity and will have to purchase it at market price if the optionee decides to exercise the option — compare covered option in this entry

— put option

:an option to sell for a fixed price at or within a specified time

— stock option

:an option giving the optionee the right to purchase a specified number of shares of stock from a corporation at a specified price at or within a specified time — see also incentive stock option in this entry

4 :a right of an insured to choose the form in which various payments due him or her on a policy shall be made or applied

— dividend option

:an option allowing the owner of a participating insurance policy and especially a life insurance policy to determine how dividends are to be paid (as in cash or by being applied as payment for additional insurance)

— installments-for-a-fixed-amount option

:a settlement option in which the insurer retains the policy proceeds and makes periodic payments of a fixed amount until the proceeds are exhausted — called also fixed amount option

— installments-for-a-fixed-period option

:a settlement option in which the policy proceeds are retained by the insurer and paid in installments over a fixed period of time — called also fixed period option

— interest-only option

:a settlement option in which the insurer retains the policy proceeds and makes interest payments at a guaranteed minimum rate

— joint-and-last-survivorship option

:an option in which the insurer makes periodic payments to two or more persons (as a husband and wife) of the proceeds or usually cash value of a policy until the death of the last survivor

— life income option

:a settlement option in which the insurer retains the policy proceeds and makes periodic payments for the beneficiary's life or for a specified number of years even after the beneficiary's death with payments to a different recipient

— nonforfeiture option \ˌnän-ˈfȯr-fə-ˌchu̇r-\

:an option (as to surrender the policy for its cash value or convert the policy to one with a smaller face amount or to a term policy with a shorter period) available to a policyholder who has ceased paying premiums

— settlement option

:an option to receive payments of the proceeds of a life insurance policy other than by lump sum