What is Option?
An option is a contract giving the buyer the right, but not the obligation, to buy or sell an asset at a set price by a certain date.
An option is a type of derivative contract that grants its buyer the right to purchase (a call option) or sell (a put option) an underlying asset, such as a stock or an index, at a predetermined price (the strike price) on or before a specific expiration date. The buyer pays a premium to the seller for this right.
Unlike futures contracts, the option buyer is not obligated to exercise the right and will only do so if it is profitable. Options are traded on exchanges like the Chicago Board Options Exchange (CBOE) and are widely used for hedging risk or for speculative purposes.
ExampleIf you hold a call option giving you the right to buy a share of Apple stock at $150, and the market price rises to $180, you can still buy it at $150, profiting from the difference.