What is Options Contract?

An options contract is a derivatives contract that facilitates an agreement between two parties to carry out a potential transaction for an underlying security at a predetermined price (referred to as the strike price) on or prior to the expiry date of the contract. Options contracts are typically categorized into either a put option or a call option, both of which are bought to speculate on the direction of a stock or stock indices, or sold to generate income. Typically, a call option is purchased as a leveraged bet on the potential appreciation of a stock or index, while a put option is purchased to potentially profit from future price declines.