Option, What Is It?

Option is a contract that gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset or instrument at a pre-determined price at or before the contract expires, depending on the form of the option. The seller has the corresponding obligation to fulfill the transaction, to sell or buy, if the buyer (the holder/owner) exercises the option, while the buyer is not required to buy or sell the asset if he/she chooses not to. Options can be purchased like most other asset classes with brokerage investment accounts.

Key options concepts may include:
1. Call / Put option
2. Strike price (also known as exercise price)
3. Premium
4. Option margins

Each option contract includes:
1. Underlying Assets
2. Strike price
3. Amount of the underlying assets
4. Expired date

With options, buying or holding a call or put option is a long position. On contrast, selling or writing a call or put option is a short position.

There are 3 types of option investors:
1. Speculators：people put their money at risk and must be prepared to accept outright losses in the market.
2. Hedgers: people reduce their risk by taking an opposite position in the market to what they are trying to hedge.
3. Arbitrage trades: people who notice the price discrepancies in the market and do reversals and conversions quickly to restore the market to equilibrium, keeping the price of calls and puts in line and establishing put-call parity.