What Are Options? What Are Their Differences from Futures Contracts

Question

Examlex · Accepted Answer

The Answer is Options are contracts that give the purchaser the option, or right, to buy or sell the underlying asset at a specified price, called the exercise price or strike price, within a specific time period called the term to expiration. The seller, sometimes called the writer, of the option is obligated to buy or sell the asset to the purchaser if the owner of the option exercises the right to sell or buy. Because the right to buy or sell an asset at a specified price has value, the owner of an option is willing to pay an amount for it called premium. There are two types of option contracts: American options can be exercised at any time up to the expiration date of the contract, and European options can be exercised only on the expiration date.

What Are Options? What Are Their Differences from Futures Contracts

Definitions: