Options are financial contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price and time.

The two main types of options are call options and put options.

A call option gives the holder the right to buy the underlying asset at a predetermined price (strike price) before a specified expiration date. If the market price of the underlying asset rises above the strike price, the holder can exercise the option and buy the asset at the lower strike price, realizing a profit. If the market price does not rise above the strike price, the holder can let the option expire worthless and only lose the cost of the option premium.

A put option gives the holder the right to sell the underlying asset at a predetermined price (strike price) before a specified expiration date. If the market price of the underlying asset falls below the strike price, the holder can exercise the option and sell the asset at the higher strike price, realizing a profit. If the market price does not fall below the strike price, the holder can let the option expire worthless and only lose the cost of the option premium.

The price of an option is determined by various factors, including the price of the underlying asset, the strike price, the time until expiration, the volatility of the underlying asset, and the prevailing interest rates.

Options can be used for a variety of purposes, including hedging against potential losses, speculating on future price movements, and generating income through selling options. However, they also carry a significant amount of risk, and it is important to fully understand the mechanics and potential outcomes before engaging in options trading.