An option is a security that is neither debt nor equity but derives its value from an underlying asset that is often another security.

Question

Quizplus · Accepted Answer

This is a correct definition of an option. Options are derivative securities, meaning they derive their value from underlying assets such as stocks, commodities, or currencies. Options can be used for hedging, speculation, or generating income. They are neither debt nor equity, but they give the holder the right (but not the obligation) to buy or sell the underlying asset at a specific price (strike price) and a specific time (expiration date).

An Option Is a Security That Is Neither Debt nor Equity