What are options

Options in finance are financial instruments that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specified time period. There are two types of options: call options and put options. A call option gives the holder the right to buy the underlying asset at a specified price, known as the strike price, before the option expires. If the market price of the asset is higher than the strike price, the holder can exercise the option and buy the asset at the lower price. On the other hand, a put option gives the holder the right to sell the underlying asset at the specified price before the option expires. If the market price of the asset is lower than the strike price, the holder can exercise the option and sell the asset at the higher price. Options are often used by investors and traders as a way to hedge against or speculate on the price movements of the underlying asset. They can also be used to generate income through the sale of options, or to protect an investment portfolio from potential losses. Options can be traded on organized exchanges, such as the Chicago Board Options Exchange (CBOE), or over-the-counter (OTC) through a broker. They are a versatile financial instrument that can be used in a variety of strategies to manage risk and potentially enhance returns. However, options trading can also be complex and risky, and it is important for investors to thoroughly understand the mechanics and risks of options before trading them.