Page "Derivative (finance)" Paragraph 26

# Options are contracts that give the owner the right, but not the obligation, to buy ( in the case of a call option ) or sell ( in the case of a put option ) an asset.

The price at which the sale takes place is known as the strike price, and is specified at the time the parties enter into the option.

The option contract also specifies a maturity date.

In the case of a European option, the owner has the right to require the sale to take place on ( but not before ) the maturity date ; in the case of an American option, the owner can require the sale to take place at any time up to the maturity date.

If the owner of the contract exercises this right, the counter-party has the obligation to carry out the transaction.

Options are of two types: call option and put option.

The buyer of a Call option has a right to buy a certain quantity of the underlying asset, at a specified price on or before a given date in the future, he however has no obligation whatsoever to carry out this right.

Similarly, the buyer of a Put option has the right to sell a certain quantity of an underlying asset, at a specified price on or before a given date in the future, he however has no obligation whatsoever to carry out this right.