Part 11 Trading Master Class What Are Options?
An option is a contract between two parties:
Buyer (holder) – Pays a premium for rights.
Seller (writer) – Receives a premium and carries obligations.
Each option contract is linked to an underlying asset—commonly stocks, indices, commodities, or currencies. In most markets, one option contract represents a lot size (like 50 or 100 units of the underlying).
Options come with two important characteristics:
Strike price: The fixed price at which the underlying can be bought or sold.
Expiration date: The deadline after which the option becomes invalid.
Because options derive their value from something else (underlying asset), they are called a derivative instrument.
