What is the term for a financial instrument that gives the holder the right, but not the obligation, to buy or sell an asset at a specific price before a certain date?
Option
The answer was Option. Here's the why, the decoys, and the source trail.
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An option is a contract that grants the right — but not the obligation — to buy (call option) or sell (put option) an underlying asset at a predetermined price within a set time frame. This flexibility is what distinguishes options from futures, where both parties are obligated to fulfill the contract.
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A good trivia question makes the wrong answers feel close. Here is the clean read on the set.
- Futures contract - a decoy; it may live near the same topic, but it does not answer this exact clue.
- Option - correct answer.
- Swap - a decoy; it may live near the same topic, but it does not answer this exact clue.
- Warrant - a decoy; it may live near the same topic, but it does not answer this exact clue.
Option is the one to remember. An option is a contract that grants the right — but not the obligation — to buy (call option) or sell (put option) an underlying asset at a predetermined price within a set time frame. The earliest known options contracts date back to ancient Greece, where the philosopher Thales reportedly used them to secure olive presses before a bumper harvest, making a tidy profit.
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