An option contract is a contract between two parties wherein the first party (the option writer) confers the second party (the buyer) the right, but not the obligation to buy (Call) or sell (Put) a specific underlying instrument or asset at a specific price(Strike or Exercise Price), until or on a specific future date (Expiration Date). The price paid for this right by the buyer of the option contract to the writer is called the Option Premium.

Option contracts can be classified as to whether they give the holder of the option, the right to buy or to sell the underlying stock. A Call option is a contract giving its holder the right to buy a specified stock from the option writer while a Put option is a contract giving its holder the right to sell a specified stock to the option writer. If the buyer chooses to exercise this right, the seller is obliged to sell or buy the asset at the agreed price. The buyer may choose not to exercise the right and let it expire.

In equity markets, a Call option is the right to buy or sell a specific stock at a specific price for a specific time frame. The price of the option contract is derived from (or depends on) the underlying stock and the option will be the right to buy or sell it. For this reason, option contracts are recognized as derivatives instruments. The underlying asset can be a piece of property, a security (stock or bond), or even another derivative instrument, such as a futures contract.

Return profile for equity investments