When you purchase an options contract, you’re not buying an asset — rather, you’re buying a contract that gives you the right to buy or sell an asset at a specific price by a fixed date, depending on the type you choose. Note that we said it gives you the right to buy an asset; this isn’t an obligation.
Therefore, options fall under the derivatives category, because their value depends on the value of something else (the asset you’ll have the right to buy or sell). The asset in question could be a commodity, a currency, an index, or a range of other securities.
There are two parties involved in this arrangement: The person who buys the contract, also known as the holder, and the person who sells it (called the writer).
Options in their current form date all the way back to 1973, when they were introduced by the Chicago Board Options Exchange. However, they’ve been diffused into the rest of the world gradually. For instance, in India, the National Stock Exchange (NSE) only launched them in 2001.
Options contracts contain the following six features: