An option is a financial contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specified date. The underlying asset can be a stock, a bond, a currency, a commodity, or a market index. There are two main types of options: call options and put options. A call option gives the buyer the right to buy the underlying asset at a specified price on or before a specified date. A put option gives the buyer the right to sell the underlying asset at a specified price on or before a specified date. The price of an option is called the premium. The premium is determined by a number of factors, including the price of the underlying asset, the strike price, the time to expiration, and the volatility of the underlying asset. Options can be used for a variety of purposes, including: Speculation: Investors can buy options to speculate on the future price of the underlying asset. For example, an investor who believes that the price of a stock will go up can buy a call option on that stock. If the price of the stock goes up, the investor can exercise the option and buy the stock at the lower strike price, and then sell the stock at the higher market price for a profit. Hedging: Investors can use options to hedge against risk. For example, an investor who owns a stock can buy a put option on that stock to protect against the stock price going down. If the stock price does go down, the investor can exercise the put option and sell the stock at the strike price, which will limit the investor's losses. Income generation: Investors can sell options to generate income. For example, an investor can sell a call option on a stock that they do not own. If the price of the stock does not go up, the investor keeps the premium as income. Options trading can be a complex and risky activity. Investors should carefully understand the risks before trading options. Here are the 3 types of options: American options: These options can be exercised at any time before the expiration date. European options: These options can only be exercised on the expiration date. Bermudan options: These options can be exercised at certain predetermined dates before the expiration date.