What is an Option?
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There are two basic types of options: calls and puts.
A call is the right, but not the obligation, to buy a security at a specified price for a predetermined period of time.
A put is the right, but not the obligation, to sell a security at a specified price for a predetermined period of time.
Calls and puts are contracts between a buyer and a seller. The buyer of the option has the right, but not the obligation, to take delivery of an underlying asset. The option buyer is also called the holder.
The seller of the option has the obligation to deliver the underlying asset. The seller has written the contract to deliver the underlying and is also called the writer.
Continue to why options were created.