19.1 Introduction to Options

An option is a contract between a buyer and a seller in which the buyer has the right, but not the obligation, to purchase (in the case of a call option) or sell (in the case of a put option) a specified underlying asset at a specified price during or at the end of a specified period. The option seller, or writer, grants this right in return for the option price, or premium. The option buyer is long the contract; the seller is short.