Option

A contract that entitles the holder to buy or sell an underlying asset (stock, bond, commodity, currency, etc.) at a given price (the exercise or strike price) and before a certain date (the expiry date). A call option entitles the holder to buy the underlying, while a put option gives the holder the right to sell. However, the buyer of the option is not obliged to exercise the contract. This differentiates options from futures, which are an undertaking between two parties to buy or sell an underlying asset or commodity. Options are used as a tool to leverage or hedge against changes in the value of the underlying asset.