An option is a financial instrument giving purchasers the ability to sell or buy an asset at a certain date and price. There’s a contract involved in the process that predetermines all of the details of the transaction. In contrast to futures, a holder of an option does not have to follow through with the purchase or sale of the asset.

There are two types of options: put and call. Through a put option, the holder can sell an asset at a predetermined price within a given timeframe. On the other hand, a call option lets a holder purchase an asset at the predetermined price within a given timeframe.