Your version of Internet Explorer is no longer supported and may not display all the features of our website. For the best experience, please update your browser with the latest version. When you buy an option, the cost of that option is called a premium. Since you're opening the position by making a purchase, you start at a net debit. If the option expires worthless, you won't recover the premium you paid for the contract.

Options contract specifications - ASX

And, if you either exercise or sell the contract, you must subtract the cost of the premium from your return to calculate your net profit or loss. Commissions and other trading costs also apply on each transaction.

If you sell a contract, you receive the premium and start out at a net credit. If the option expires, the premium becomes your profit and the buyer's loss. If the option is exercised, you still keep the premium, but are obligated to buy or sell the underlying from the buyer. Contract prices are not fixed, but fluctuate based on a number of factors: As a result, the premium you pay today will likely be higher or lower than the premium another investor paid yesterday or will pay tomorrow.

Options involve risk and are not suitable for all investors. Detailed information on our policies and the risks associated with options can be found in Scottrade's Options Application and Agreement, Brokerage Account Agreement, and Characteristics and Risks of Standardized Options available at your local Scottrade branch office or from the Options Clearing Corporation at OPTIONS or by visiting www.

All option accounts require prior approval by Scottrade. Market volatility, volume, and system availability may impact account access and trade execution.

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Supporting documentation for any claims will be supplied upon request. Any specific securities, or types of securities, used as examples are for demonstration purposes only. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security or account.

Such consent is effective at all times when using this site. Brokerage products and services offered by Scottrade, Inc. All investing involves risk. The value of your investment may fluctuate over time, and you may gain or lose money. In this instance, equity is defined as Total Brokerage Account Value minus Recent Brokerage Deposits on Hold. The performance data quoted represents past performance. Past performance does not guarantee future results.

The research, tools and information provided will not include every security available to the public. Although the sources of the research tools provided on this website are believed to be reliable, Scottrade makes no warranty with respect to the contents, accuracy, completeness, timeliness, suitability or reliability of the information.

Information on this website is for informational use only and should not be considered investment advice or recommendation to invest. Scottrade does not charge setup, inactivity or annual maintenance fees.

Applicable transaction fees still apply. Scottrade does not provide tax advice.

Options Contract

The material provided is for informational purposes only. Please consult your tax or legal advisor for questions concerning your personal tax or financial situation. Investors should consider the investment objectives, charges, expense, and unique risk profile of an exchange-traded fund ETF before investing. A prospectus contains this and other information about the fund and may be obtained online or by contacting Scottrade.

The prospectus should be read carefully before investing.

Leveraged and inverse ETFs may not be suitable for all investors and may increase exposure to volatility through the use of leverage, short sales of securities, derivatives and other complex investment strategies. Investors should monitor these holdings, consistent with their strategies, as frequently as daily.

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Margin trading involves interest charges and risks, including the potential to lose more than deposited or the need to deposit additional collateral in a falling market. It contains information on our lending policies, interest charges, and the risks associated with margin accounts.

Consult with your tax advisor for information on how taxes may affect the outcome of these strategies. Keep in mind, profit will be reduced or loss worsened, as applicable, by the deduction of commissions and fees.

Market volatility, volume and system availability may impact account access and trade execution. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss, in a down market. Third-party websites, research and tools are from sources deemed reliable.

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Understanding Options - The Daily Reckoning

How Many Investments Should You Have? How Much Risk Can You Tolerate? Regulatory Trading Suspensions Trading Halts: Cost of the Contract When you buy an option, the cost of that option is called a premium. Examples exclude transaction costs and tax considerations. Call Us At Unauthorized access is prohibited.