STOCK Options Contract
An option contract is an agreement in which one party (the holder or buyer) has the right (but not the obligation) to exercise buy or sell an asset at a set price (strike price) on or before a future date (the exercise date or expiration); and the other party (the writer or seller) has the obligation to honor the terms of the contract. Since the option gives the buyer a right and the writer an obligation, the buyer pays the option premium to the writer. During the term of the option, the buyer has a 'long' position, and the seller a 'short' position.
Put options give the holder the right to sell the asset at the strike price. Call options give the holder the right to purchase the asset at the strike price.Call OPTION
A call option (sometimes simply called a "call") gives the buyer of the option the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying instrument) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right. The buyer of a call option wants the price of the underlying instrument to rise in the future; the seller either expects that it will not, or is willing to give up some of the upside (profit) from a price rise in return for (a) the premium (paid immediately) plus (b) retaining the opportunity to make a gain up to the strike price (see below for examples). Call options are most profitable for the buyer when the underlying instrument is moving up, making the price of the underlying instrument closer to the strike price. When the price of the underlying instrument surpasses the strike price, the option is said to be "in the money." [Wikipedia]
PUT OPTION
A put option (sometimes simply called a "put") gives the buyer of the option the right, but not the obligation to sell a commodity or financial instrument (the underlying instrument) to the seller of the option for a certain time for a certain price (the strike price). The seller (or "writer") has the obligation to purchase the underlying asset at that strike price, if the buyer exercises the option. Note that the seller of the option is agreeing to buy the underlying asset if the put holder exercises the option. In exchange for having this option, the buyer pays the seller a fee (the premium). (Note: Although option writers are frequently referred to as sellers, because they initially sell the option that they create, thus, taking a short position in the option, they are not the only sellers. An option holder can also sell his long position in the option. However, the difference between the two sellers is that the option writer takes on the legal obligation to buy the underlying asset at the strike price, whereas, the option holder is merely selling his long position, and is not contractually obligated by the sold option.) [Wikipedia]