Economics Derivatives Questions
Options contracts are financial instruments that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time period. These contracts are commonly used in derivatives trading to hedge against price fluctuations or speculate on future price movements. There are two types of options contracts: call options and put options. A call option gives the holder the right to buy the underlying asset, while a put option gives the holder the right to sell the underlying asset. The predetermined price at which the asset can be bought or sold is known as the strike price, and the specified time period is called the expiration date. Options contracts provide flexibility and leverage to investors, allowing them to potentially profit from price movements without actually owning the underlying asset.