Option

An option contract is an agreement in which the buyer (holder) has the right (but not the obligation) to exercise by buying or selling an asset at a set price (strike price) on (European style option) or before (American style option) a future date (the exercise date or expiration); and the seller (writer) has the obligation to honor the terms of the contract. Since the option gives the buyer a right and the writer an obligation, the buyer pays the option premium to the writer. The buyer is considered to have a long position, and the seller a short position.
Given that the contract's value is determined by an underlying asset and other variables, it is classified as a derivative.

For every open contract there is a buyer and a seller. Traders in exchange-traded options do not usually interact directly, but through a clearing house such as, in the U.S., the Options Clearing Corporation (OCC) or in Germany and Luxemburg Clearstream International. The clearing house guarantees that an assigned writer will fulfill his obligation if the option is exercised.