What Is an Options Contract? Definition, Types & Examples

What are option contracts and how do they work?

An option contract is a negotiable security that gives its owner the right or “option” (but not the obligation) to buy or sell a predetermined amount of an underlying asset (usually 100 shares) at a specified price (the ” strike” of the contract price”) on or before a specified date (the contract expiration date). Call options give their owners the right to buy shares, while put options give their owners the right to sell them.

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