Equity Options

An equity option is a type of derivative contract that gives the holder the right, but not the obligation, to buy or sell the underlying shares of a company at a pre-agreed price (strike price) and on a specific date (expiration date). These options derive their value from the price of the underlying shares. Each equity option has a lot size, which specifies the total number of shares covered by the contract. To enter into options trading, a trader must pay a premium to purchase the contract. The premium is the cost of acquiring the right to exercise the option, which can potentially lead to profits depending on how the underlying asset's price moves.