An option contract is a financial derivative that provides the buyer with the right, but not the obligation, to buy or sell an underlying asset at a predetermined price (known as the strike price) within a specified time frame or on a specific date. The underlying asset could be a stock, commodity, currency, or index.A financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specific time frame.
Their value is influenced by factors such as the underlying asset's price, volatility, time until expiration, and interest rates.
Each option contract involves two parties: the buyer, who pays a premium for the rights the option confers, and the seller (or writer), who earns the premium in exchange for taking on the obligation to fulfill the contract if the buyer exercises the option.