Options are contracts in which the terms of the contract are standardized and give the buyer the right but not the obligation to buy or sell a stock at a fixed price for a specific period of time. Similar to stocks, options can be used to take a position on the market in an effort to capitalize on market movement. However, unlike stocks, options can provide you the benefits of leverage over a position in an individual stock, or basket of stocks reflecting the broad market. Options have a limited life; while common stock can be held indefinitely, options have an expiration date. If an option is not closed out or exercised prior to its expiration date, it ceases to exist as a financial instrument.
Options allow you to participate in price movements without committing the large amount of funds needed to buy stock outright. Options can also be used to hedge a stock position, or to acquire or sell stock at a purchase price more favorable than the current market price.
While options have many benefits. they involve risk and are not suitable for everyone. Your Oppenheimer Financial Advisor can help you determine whether an options strategy is right for your overall investment plan.
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