Options Basics

What is an Option Contract?

An options contract is an agreement between a buyer and a seller that gives the buyer the right, but not the obligation, to buy or sell a specific asset at a specific strike price on or before a specific expiration date.
What is an Option Contract?
Kirk Du Plessis
Apr 19, 2021

An option contract in its most simple terms is an agreement between two parties to buy or sell some underlying asset or stock at a predetermined price in the future. A call option gives the option trader the right but not the obligation to buy shares of a stock at a predetermined price in the future. A put option gives the option trader the right but not the obligation to sell shares of a stock at a predetermined price in the future. Options are unique in that they have a predetermined expiration dates and strike prices which causes a little confusion for people who make the transition from stock trading (since you can hold a stock forever). Today we'll take a deeper look into understanding options with a simple but effective example using a fast-food coupon.

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