Options

Options represent a contract that enables investors to buy or sell underlying instruments such as security, exchange-traded funds (ETFs) or indices at a certain price over a certain period of time.

Buying and selling options can be done on the options market, which trades contracts based on securities.

When trading options, the price of the option is thus a percentage of the underlying asset or security.

Investors who purchase an option are able to buy shares at a later time and are known as a call option, while buying an option that allows you to sell shares at a later time is called a put option.

Why Trade Options

Notably, options differ from stock trading because they do not represent ownership in a company.

Additionally, futures utilize contracts much in the same way as options, though options are considered a much lower risk due to the fact that you can withdraw or close an options contract at any point.

When buying or selling options, traders retain the right to decide how to exercise that option at any point up until the expiration date.

As such, buying or selling an option doesn't mean you actually have to exercise it at the buy/sell point.

This flexibility with options is a notable distinction from futures and are considered derivative securities.

This means the price of options derived from the value of assets like the market, securities or other underlying instruments.

For this reason, options are often considered less risky than stock trading.

Options trading is available at many brokerage companies and is a core offering for most retail venues.