what is an outright option 
an outright option is an option that is bought or sold individually this option is not part of a spread trade or other types of options strategy where multiple different options are purchased understanding the outright optionan outright option which can include calls and puts can refer to any basic option purchased on a single underlying security they are the most basic form of options trading outright options trade on an exchange similar to security assets like stocks in the united states there are numerous exchanges listing all types of outright options for investors thus the options market will see activity from both institutional and retail investors alike institutional investors may use options to hedge the risk exposure in their portfolios managed funds may 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 relative to investing directly in the underlying asset gaining access to options trading is generally more complex and requires additional brokerage permissions most brokerage platforms will require a margin account and a minimum deposit commonly in excess of 2 000 to trade options both institutional and retail investors using outright options will generally focus on either calls or puts calls and puts are typically contracted in 100 share increments this means one option controls 100 shares of the underlying stock option premiums are quoted on a per share basis a 0 50 option will cost 50 to buy 0 50 x 100 shares 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 or more options contracts in a unit trade exotic option strategies 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 outright call and put optionsan outright option is either a call or put the trader either buys or sells one or the other but not both as a directional bet on where the underlying asset is going or to hedge another non option position the purchase of an option is also called a long option whereas selling one is also called a short option taking on more than one type of option for the same trade doesn t qualify as an outright options trade a long call option gives the buyer the right to buy an underlying security at a specified strike price with an american option the buyer can exercise the option at any time up until the expiration date the strike price is the price at which the buyer can take ownership of the underlying and exercising is taking advantage of that opportunity in exchange for this right the option buyer pays a premium to the option seller the option seller gets to keep the premium but is obliged to sell the underlying security to the call buyer at the strike price if the buyer exercises their option conversely a long put option gives the buyer the right to sell an underlying security at a specified strike price in exchange for this right the put option buyer pays a premium to the option seller the option seller gets to keep the premium but is obliged to buy the underlying from the put buyer at the strike price if the buyer exercises their option call and put options have an expiry date american options can be exercised any time up until expiry while european options can only be exercised at expiration outright option exampleassume an investor is bullish on apple inc aapl and believes that the stock price will appreciate over the next few months if the investor wants to buy an outright option they would purchase a call option the call option gives the call buyer the right to buy apple at a specified price assume the stock is currently trading at 183 20 on may 22 the investor believes that by august the stock could be trading north of 195 looking at the available call options the trader has to choose how they want to proceed they could buy an option that is already in the money for example they could buy the 170 strike price august call for 19 20 ask price this would cost the investor 1 920 19 20 x 100 shares if the stock price does reach 195 the option will be worth approximately 25 netting the option buyer a profit of 580 25 19 20 x 100 shares they could also exercise their option receiving the shares at 170 and then selling them for the current market price which in this case is theoretically 195 the risk is that the trader could lose up to 1 920 if the price of apple stock falls the biggest loss would occur if it fell to 170 or below the trader would lose their full premium although they could sell the option before that happened to recoup some of the option s cost another possibility is to buy a near the money or out of the money call option these cost less but come with their own drawbacks and opportunities assume the trader buys a 185 strike price option for 9 90 ask price this cost them 990 if the stock is trading near 195 at expiry the option should be worth about 10 this nets the trader a profit of 10 which less commissions means they likely lose a bit of money put a different way the trader could exercise the option and take control of the shares at 185 they could then sell them at 195 on the stock market for a profit of 1000 10 x 100 shares but they paid 990 for the option so their net profit is 10 in order to make money on this trade the price will need to rise above 195 before or at expiry if it goes to 200 the trader nets a profit of 510 the option will be worth 15 200 185 but they paid 9 90 for it that leaves 5 10 in profit per share or 510 5 10 x 100 shares the price needs to move up more than in the previous example comparing the two scenarios the first one obviously costs a lot more the first option will be worth something at expiry unless the stock price falls below 170 that means the trader can likely recoup some of the cost of the option even if the price doesn t rise as expected or falls on the other hand the second option will continue to lose value and be worth nothing at expiry if the price of the stock doesn t rise above the 185 strike even if the stock does rise above the strike price the trade may still lose money even if the price reaches its 195 target the price will need to move above 195 in the order for the trader to make money in the second scenario investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal 