The glossary Option
Option are a special type of financial instruments, reserved to advanced investors. The general concept is the following: instead of buying a specific security (for example Apple) you can buy an option, which is a contract that gives you the right (but not the obligation) to purchase the same security at a fixed and specified price for a specified period of time. There are two main type of option: Call and Put. One gives the right to buy, the other one to sell.
There are similarities between insurance products and options. For a premium you can for example insure your car against damages. If during the period of time specified in your contract, you don’t have a car accident then you lose your premium. On the contrary, if you had an accident then you usually receive some form of financial compensation as stipulated in your contract. The idea is a bit the same for options: for a premium, you can then later buy or sell a security at a prespecified price even the price of the security has moved in the meantime.