What is an option?

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An option is an agreement, or a contract, between two people: the buyer and the seller. There are two types of options: calls and puts. A call option is the right to buy and a put option is the right to sell a specific item (the underlying asset), at a specific price (the strike price), for a specific time (until expiration).You must pay an option premium when buying an option. However, when you sell an option you receive this premium.

Bought Calls

After you have paid the option premium you then have the right, as a call owner, to buy the underlying shares by paying the strike price. However, there is no obligation to do so. If the bought call owner does choose to exercise this right, then they are said to have exercised the option.

Bought Puts

After you have paid the option premium you then have the right, as a put owner, to sell the underlying shares by receiving the strike price. Again, there is no obligation to do so. If the bought put owner does choose to exercise this right, then they are said to have exercised the option.

Sold Calls

A call seller will initially receive the option premium, however has no control over when, or if, the call owner exercises the option. If the call owner exercises the option the call seller is obligated to sell the underlying shares at the strike price and is said to have been exercised.

Sold Puts

A put seller will initially receive the option premium, however has no control over when, or if, the put owner exercises the option. If the put owner exercises the option the put seller is obligated to buy the underlying asset at the strike price and is said to have been exercised.


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