Part 6 Learn Institutional Trading

What Are Options?

An option is a financial derivative whose value is based on an underlying asset—such as stocks, indices, or commodities. The two main types of options are:

Call Option: Gives the holder the right to buy an asset at a specific price (called the strike price) before or on the expiration date.

Put Option: Gives the holder the right to sell an asset at a specific strike price before or on the expiration date.

The buyer of an option pays a premium to the seller (writer) for this right. The seller, in return, assumes an obligation—if the buyer exercises the option, the seller must fulfill the contract terms.