What is an option in finance?

In finance, an option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option.

What is an option contract?

What Are Options? An option is a contract between two parties that secures for the option buyer the right, but does not commit them, to buy or sell a quantity of an underlying asset at a specific price within a set amount of time. An options contract's value is tied to the price of its underlying asset, such as an individual stock or a stock index.

What are options based on?

Types, Spreads, Example, and Risk Metrics The term option refers to a financial instrument that is based on the value of underlying securities, such as stocks, indexes, and exchange-traded funds (ETFs). An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset.