An options market is a financial market where traders buy and sell contracts that give the right, but not the obligation, to buy or sell an underlying asset—such as currencies, stocks, or commodities—at a fixed price on or before an expiration date.
Options come in two main types: call options, which give you the right to buy at a strike price, and put options, which give you the right to sell at a strike price. Traders use options to profit from price movements, hedge existing positions, or implement more complex strategies such as spreads and straddles.
A key advantage of options is flexibility—you pay an upfront premium but control a larger position than outright ownership. However, this leverage cuts both ways. Options prices are sensitive to market volatility and time decay (the loss of value as expiration approaches), both of which can erode profits or amplify losses. Understanding these mechanics is essential before trading options.
