Types of Options

There are two main types of option contracts: call options and put options.

1. Call options: A call option gives the buyer the right, but not the obligation, to buy the underlying asset at a specified price (known as the strike price) on or before a specified date (known as the expiration date). Call options are typically used by investors who expect the price of the underlying asset to rise. If the price of the underlying asset goes up before the expiration date, the buyer of the call option can buy the asset at the lower strike price and then sell it at the higher market price, realizing a profit. If the price of the underlying asset does not rise, the buyer of the call option may let the option expire, in which case they will lose the premium paid to purchase the option.
2. Put options: A put option gives the buyer the right, but not the obligation, to sell the underlying asset at a specified price (known as the strike price) on or before a specified date (known as the expiration date). Put options are typically used by investors who expect the price of the underlying asset to fall. If the price of the underlying asset goes down before the expiration date, the buyer of the put option can sell the asset at the higher strike price and then buy it back at the lower market price, realizing a profit. If the price of the underlying asset does not fall, the buyer of the put option may let the option expire, in which case they will lose the premium paid to purchase the option.