In
finance, an
option is a contract which gives the buyer (the owner or holder) the right, but not the obligation, to buy or sell an
underlying asset or
instrument at a specified
strike price on or before a specified
date, depending on the form of the option. The strike price may be set by reference to the
spot price (market price) of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount or at a premium. The seller has the corresponding obligation to fulfill the transaction – to sell or buy – if the buyer (owner) "exercises" the option. An option that conveys to the owner the right to buy at a specific price is referred to as a
call; an option that conveys the right of the owner to sell at a specific price is referred to as a
put. Both are commonly traded, but the call option is more frequently discussed.