The holder of the option is not obligated to exercise the right granted to him by the option, but should he choose to do so the seller (issuer) of the option is forced to fulfill the terms agreed upon in the option. Every option has an expiration date, if the holder of the option fails to exercise his right before or on the expiration date then he loses the ability to exercise his right and the option becomes void.

The underlying asset of an option can be a wide variety of financial assets but is limited to only one. Some of the possible underlying assets are: shares of stock, property, bonds, futures, commodities, etc.

There are several types of options, but the most known and generally used type are listed options which fall under the category of exchange traded derivatives. This type of options includes stock options, futures options, bond options, index options and commodity options.
Another type of options are the dealer options or also known as over-the-counter options which are traded between private parties, the terms of which are unrestricted – which makes them a favorable type for large businesses and institutions.

Listed options are a popular means of investing amongst day traders and speculative investors. The reason for this is because the price of listed options can rise and fall very rapidly in response to various market developments. If someone has a call option which lets them buy a set amount of shares of company A at a specific price and the company releases its quarterly figures which turn out to be much better than expected, its shares will very rapidly increase in price – this in turn increases the price of that particular call option because it enables the holder to buy the shares of company A for less than what they will be worth. However, the risk in this scenario becomes very apparent as well. If company A’s quarterly report turned out to be worse than what was expected, then the price of its shares will decrease in value and the call option then becomes practically useless, after all no one will want to use it to buy company A’s shares at a higher price than what they’re trading for.

These characteristics make listed options a very speculative method of investment.