option contract

An option contract in economics is a financial agreement that gives the buyer the right, but not the obligation, to either buy or sell an underlying asset at a specific price within a set timeframe.1

There are two primary types of options:
* Call options: Grant the buyer the right to purchase an asset at a predetermined price (the strike price) before the expiration date.1
* Put options: Grant the buyer the right to sell an asset at a predetermined price before the expiration date.1

The price of an option, known as the premium, is influenced by factors such as the strike price, time to expiration, interest rates, and market volatility. Options offer flexibility, defined risk, and capital efficiency, allowing traders to speculate on market movements or hedge existing positions. They are not limited to stocks and can be applied to various assets like ETFs, indexes, and futures contracts.1