Chapter 02 · Section 2.1

Underlying Assets

An option is a contract.

• It gives one party (the holder of the option) the right to choose, during a specified period of time, to buy (or sell, respectively) a specified quantity of a specified asset (for instance a stock) at a given price.
• The other contract party (the writer of the option) has the obligation to fulfill the holder's right.

Options can be written on many kinds of assets. There are commodity options, precious metal options, currency options, stock options etc. The asset upon which an option is based is called underlying asset (or just "underlying").There are two types of options: calls (options to buy) and strong>puts(options to sell).