A stock option is a contract which conveys to its holder the right, but not the obligation, to buy or sell shares of the underlying security at a specified price on or before a given date. After this given date, the option ceases to exist. The seller of an option is, in turn, obligated to sell (or buy) the shares to (or from) the buyer of the option at the specified price upon the buyer's request.

Options are currently traded on the following U.S. exchanges: The American Stock Exchange, Inc. (AMEX), the Chicago Board Options Exchange, Inc. (CBOE), the International Securities Exchange (ISE), the Pacific Exchange, Inc. (PCX), and the Philadelphia Stock Exchange, Inc. (PHLX). Like trading in stocks, option trading is regulated by the Securities and Exchange Commission (SEC).

This content provides an introductory understanding of stock options and how they can be used. Options are also traded on indexes (AMEX, CBOE, PHLX, PCX), on U.S. Treasury rates (CBOE), and on foreign currencies (PHLX); information on these option products is not included in this document but can be obtained by contacting the appropriate exchange. These exchanges seek to provide competitive, liquid, and orderly markets for the purchase and sale of standardized options. All option contracts traded on U.S. securities exchanges are issued, guaranteed and cleared by The Options Clearing Corporation (OCC). OCC is a registered clearing corporation with the SEC and has received a 'AAA' credit rating from Standard & Poor's Corporation. The 'AAA' credit rating relates to OCC's ability to fulfill its obligations as counterparty for options trades.

This information should be read in conjunction with the basic option disclosure document, titled Characteristics and Risks of Standardized Options, which outlines the purposes and risks of option transactions. Despite their many benefits, options are not suitable for all investors. Individuals should not enter into option transactions until they have read and understood the risk disclosure document which can be obtained from their broker, any of the Options Exchanges, or OCC. It must be noted that, despite the efforts of each exchange to provide liquid markets, under certain conditions it may be difficult or impossible to liquidate an option position. Please refer to the disclosure document for further discussion on this matter. In addition, margin requirements, transaction and commission costs, and tax ramifications of buying or selling options should be discussed thoroughly with a broker and/or tax advisor before engaging in option transactions.