Part 4 Learn Institutional Trading

What Are Options?

An option is a financial derivative contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset—such as a stock, index, or commodity—at a predetermined price (called the strike price) within a specified period.

There are two main types of options:

Call Option – gives the holder the right to buy the underlying asset at the strike price before expiry.

Put Option – gives the holder the right to sell the underlying asset at the strike price before expiry.

The person who buys an option is called the option buyer or holder, while the person who sells (writes) the option is called the option writer or seller.