Outright Option

An outright option is an option that is bought or sold individually. The option is not part of a spread trade or exotic option regime. An outright option can refer to any basic option purchased on a single underlying security. Outright options will generally be either a call or put.

Outright options are typically used by advanced investors. These options are the most basic form of an option investment. Outright options generally include either a put or call.

Outright options trade on trading exchanges similar to security assets. In the United States there are numerous exchanges listing all types of outright options for investors. Thus, the standard options market will see activity from both institutional and retail investors alike. Outright options on open market exchanges will typically be easily identified by the ticker associated with the underlying security.

Institutional investors generally use options to hedge risk of portfolio exposure. In the investment market there are also several managed funds that use options as the central focus of their investment objective. Many leveraged bullish and bearish strategies also rely on the use of options.

Retail investors may choose to use options as an advanced strategy or as a cheaper alternative to investing directly in security assets. Gaining access to option investing is generally more complex and requires additional brokerage permissions. Most brokerage platforms will require a margin account and minimum investment of approximately $2,000 to trade options.

Both institutional and retail investors using outright options will generally focus on either calls or puts. Terms for these investments will generally include a strike price and expiration. Calls and puts are typically contracted in 100 share increments. Prices of the call and put are generated primarily from iterations of the Black-Scholes pricing model with actual market prices determined by bid and ask trading.

Call options: Call options give the investor the right to buy an underlying security at a specified strike price. With an American option an investor can exercise the option at any time up until the expiration

Put options: Put options give the investor the right to sell an underlying security at a specified price. American options can be exercised at any time up until expirations. Put options are generally considered to be the safest when they are bought by investors holding the underlying asset.

Spreads and exotic options involve more advanced use of option trading instruments and are not considered to be outright options. Spread strategies involve the use of two option contracts in a unit trade. Exotic options can be constructed in a multitude of ways. Exotic options can include a contract based on a basket of underlying securities with a variety of different option contract conditions.