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Options give investors the right — but no obligation — to trade securities, like stocks or bonds, at predetermined prices, within a certain period of time specified by the option expiry date. A call option gives its buyer the option to buy an agreed quantity of a commodity or financial instrument, called the underlying asset, from the seller of the option by a certain date (the expiry), for a certain price (the strike price). A put option gives its buyer the right to sell the underlying asset at an agreed-upon strike price before the expiry date.
The party that sells the option is called the writer of the option. The option holder pays the option writer a fee — called the option price or premium. In exchange for this fee, the option writer is obligated to fulfill the terms of the contract, should the option holder choose to exercise the option. For a call option, that means the option writer is obligated to sell the underlying asset at the exercise price if the option holder chooses to exercise the option. And for a put option, the option writer is obligated to buy the underlying asset from the option holder if the option is exercised.
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Put - option to sell something
Call - option to buy something
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