Option

An option gives its owner the right, but not the obligation, to trade an underlying financial asset or commodity. Options are a common form of executive compensation in company stock.

Options differ from futures in that the owner of an option need not exercise it by purchasing the underlying contract, while the owner of a future is obligated to make the purchase.

There are two kinds of options: calls and puts. A call is the right to buy an underlying instrument, and a put is the right to sell it.