1. the option Financial instruments are based on underlying securities such as an index or stock.

2. Call options allow the holder to buy Property A put option allows the holder to sell the asset at a certain price within a specific time frame and at a certain price within a specific time frame.

3. There are two parties – option seller (option writer) and option buyer (option holder).

4. The buyer of the option has the right, but not the obligation, to exercise the contract and buy or sell the underlying asset at an agreed price.

5. The option buyer pays the option seller a premium for the right to exercise the option.

(Content on this page is courtesy of Center for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Aarti Bhargava and Labh Mehta.)