What Is an Option?

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Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. 

An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset. 

Unlike futures, the holder is not required to buy or sell the asset if they choose not to.

*Call options allow the holder to buy the asset at a stated price within a specific timeframe.

*Put options allow the holder to sell the asset at a stated price within a specific timeframe.

Each option contract will have a specific expiration date by which the holder must exercise their option. 

The stated price on an option is known as the strike price. 

Options are typically bought and sold through online or retail brokers.

***What Is a Financial Instrument?

Financial instruments are assets that can be traded, or they can also be seen as packages of capital that may be traded. 

Most types of financial instruments provide efficient flow and transfer of capital all throughout the world's investors. 

These assets can be cash, a contractual right to deliver or receive cash or another type of financial instrument, or evidence of one's ownership of an entity.

***What is a Call?

A call can mean two things. 

It can refer to an option contract giving the owner the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time. 

It can also refer to a call auction, a time when buyers set a maximum acceptable price to buy, and sellers set the minimum satisfactory price to sell a security on an exchange.

Matching buyers and sellers in this process increases liquidity and decreases volatility. 

The auction is sometimes referred to as a call market.

***What Is a Put?

A put is an options contract that gives the owner the right, but not the obligation, to sell a certain amount of the underlying asset, at a set price within a specific time. 

The buyer of a put option believes that the underlying stock will drop below the exercise price before the expiration date. 

The exercise price is the price that the underlying asset must reach for the put option contract to hold value.

A put can be contrasted with a call option, which gives the holder to buy the underlying at a specified price on or before expiration.

***What Is a Ponzi Scheme?

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. 

A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. 

This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers.

Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn't enough money to go around. 

At that point, the schemes unravel.

***What Is a Pyramid Scheme?

A pyramid scheme is a sketchy and unsustainable business model, where a few top-level members recruit newer members, who pay upfront costs up the chain, to those who enrolled them. 

As newer members in turn recruit underlings of their own, a portion of the subsequent fees they receive is also kicked up the chain. 

Often called "pyramid scams," these operations are illegal in some countries.

***How Does a Pump and Dump Scam Work?

A pump and dump scam is the illegal act of an investor or group of investors promoting a stock they hold and selling once the stock price has risen following the surge in interest as a result of the endorsement.

***What Is Corporate Fraud?

Corporate fraud refers to illegal activities undertaken by an individual or company that are done in a dishonest or unethical manner. 

Often, this kind of business fraud is designed to give an advantage to the perpetrating individual or company. 

Corporate fraud schemes go beyond the scope of an employee's stated position and are marked by their complexity and economic impact on the business, other employees, and outside parties.

***What Is Securities Fraud?

Securities fraud, also referred to as stock or investment fraud, is a type of serious white-collar crime that can be committed in a variety of forms but primarily involves misrepresenting information investors use to make decisions.

The perpetrator of the fraud can be an individual, such as a stockbroker. 

Or, it can be an organization, such as a brokerage firm, corporation, or investment bank. Independent individuals might also commit this type of fraud through schemes such as insider trading.

***What is Money Laundering?

Money laundering is the illegal process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. 

The money from the criminal activity is considered dirty, and the process "launders" it to make it look clean.

Money laundering is a serious financial crime that is employed by white collar and street-level criminals alike.

Most financial companies have anti-money-laundering (AML) policies in place to detect and prevent this activity.

***What Is Wire Fraud?

Wire fraud is a type of fraud that involves the use of some form of telecommunications or the internet. 

These can include a phone call, a fax, an email, a text, or social media messaging, among many other forms. 

Wire fraud is punishable by prison and/or fines.

***What Is Securities Fraud?

Securities fraud, also referred to as stock or investment fraud, is a type of serious white-collar crime that can be committed in a variety of forms but primarily involves misrepresenting information investors use to make decisions.

The perpetrator of the fraud can be an individual, such as a stockbroker. 

Or, it can be an organization, such as a brokerage firm, corporation, or investment bank. Independent individuals might also commit this type of fraud through schemes such as insider trading.

***What Is White-Collar Crime?

White-collar crime is a nonviolent crime committed for financial gain. 

According to the FBI, a key agency that investigates these offenses, "these crimes are characterized by deceit, concealment, or violation of trust." 

The motivation for these crimes is "to obtain or avoid losing money, property, or services or to secure a personal or business advantage."

Examples of white-collar crimes include securities fraud, embezzlement, corporate fraud, and money laundering. 

In addition to the FBI, entities that investigate white-collar crime include the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), and state authorities.

***What Is Racketeering?

The term racketeering broadly refers to criminal acts, typically those involving extortion. 

It is usually used in reference to patterns of illegal activity specified in the Racketeer Influenced and Corrupt Organizations Act (RICO). 

This is a U.S. federal law that makes it illegal to acquire or control a business through certain crimes or income from those crimes. 

It is also illegal to participate, even indirectly, in certain crimes committed by a business or to conspire to do any of the above under the act.

The list of federal crimes specified in RICO includes bribery, fraud, gambling offenses, money laundering, financial and economic crimes, obstructing justice or a criminal investigation, murder for hire, and the sexual exploitation of children.

At the state level, racketeering includes crimes such as murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, and drug crimes.