What is an option contract?

An option is a contract to exchange an asset like a share of stock at an agreed-upon price in the future. There are always two parties to an options contract: One party creates the option—traders would say they “write” the contract—while the other side buys the option.

What is the expiration date of an options contract?

The contract defines a specific price for the trade, called the strike price, and a deadline for the exchange to take place. This deadline, or expiration date, is the final moment the options contract may be executed. Typical options contracts are good for 30, 60 or 90 days, but some can have expiration dates of up to a year.

What are options & how do they work?

Using options is a form of leverage, allowing an investor to make a bet on a stock without having to purchase or sell the shares outright. In exchange for this privilege, the options buyer pays a premium to the party selling the option. There are two types of options contract: puts and calls.

What are the advantages and disadvantages of options contracts?

Options contracts have a few different advantages. These benefits include: The seller receives a premium: The seller of an options contract receives a payment (the premium). They get that premium regardless of what happens with the contract after that point.