Options Contract
A contract giving the buyer the right — but not the obligation — to buy or sell an underlying asset at a set price before or on expiration.
An options contract grants the buyer a right without an obligation. The seller (writer) receives a premium upfront and is obligated to perform if the buyer exercises.
There are two fundamental types: a call option (right to buy) and a put option (right to sell). Options are further classified as American (exercisable any time before expiry) or European (exercisable only at expiry).
The premium consists of intrinsic value — the in-the-money amount — plus time value, which decays as expiration approaches.
On the desk
A trader pays $3.20 for one AAPL $200 call expiring in 30 days. The most they can lose is $320 (the premium). If AAPL reaches $210 at expiry, the call is worth $10 intrinsically, yielding a $6.80 profit per share.