A call option is the right to buy an asset at an agreed-upon exercise price. A put option is the right to sell an asset at a given exercise price.

American-style options allow exercise on or before the expiration date. European options allow exercise only on the expiration date. Most traded options are American in nature.

Options are traded on stocks, stock indexes, foreign currencies, fixed-income securities, and several futures contracts.

Options can be used either to lever up an investor's exposure to an asset price or to provide insurance against volatility of asset prices. Popular option strategies include covered calls, protective puts, straddles, spreads, and collars.

The put-call parity theorem relates the prices of put and call options. If the relationship is violated, arbitrage opportunities will result. Specifically, the relationship that must be satisfied is

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Many commonly traded securities embody option characteristics. Examples of these securities are callable bonds, convertible bonds, and warrants. Other arrangements such as collateralized loans and limited-liability borrowing can be analyzed as conveying implicit options to one or more parties.

Trading in so-called exotic options now takes place in an active over-the-counter market.