Hedge Fund Glossary

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Option

a contract that gives the owner of the contract the right, but not the obligation, to purchase (in the case of a Call Option) or sell (in the case of a Put Option) an asset at a future date at an agreed price (known as the “exercise price” or Strike Price). When a Call Option’s Strike Price is below the current market price of the underlying asset, or when a Put Option’s Strike Price is above the current market price of the underlying asset, the Call Option or Put Option is In the Money. When a Call Option’s Strike Price is above the current market price of the underlying asset, or when a Put Option’s Strike Price is below the current market price of the underlying asset, the Call Option or Put Option is Out of the Money. Being In the Money is better.

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