What is an options contract?

An options contract is a derivative security that grants its owner the right to buy or sell a certain amount of a stock or asset at a certain price on or before a specific date. Options allow traders to bet on the price movements of stocks without actually owning those stocks. What Are Options Contracts and How Do They Work?

What are the different types of options?

There are primarily two types of option, call and put. Call Option – In this kind of option, the holder has the right to purchase the underlying asset at a particular price, which is pre-specified among the parties. This price is known as the strike price. The holder needs to buy the asset on or before the date of expiry of the option agreement.

What does 'long' and'short' mean in options contracts?

When someone enters into an options contract they are said to be 'long' if they are buying a call option or 'short' if they are buying a put option. Parties involved in options contracts must also be aware of the options chain. An options chain is a list of all the available option contracts for a particular underlying asset.

What should you look for in an options contract?

When agreeing on an options contract, buyers need to look at the “aask” price (the amount a seller is willing to receive). When you offer to buy into an options contract, you’ll offer a “bid” price, which is always lower than the ask price.