The term option refers to a type of derivative financial instrument based on the value of underlying securities, such as stocks. A derivative's price is dependent on or derived from the price of some other asset. Examples of some derivatives include calls, puts, futures, forwards, swaps, and mortgage-backed securities.
If you buy an options contract, it grants you the right, but not the obligation, to buy or sell an underlying asset at a set price on or before a specific date.
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