Options contract
Summary
An options contract is a standardised exchange traded agreement that gives the buyer a right and creates an obligation for the seller. In practice, the contract’s terms, exercise process, assignment process and settlement method all shape what happens from entry to expiry.
Definition
An options contract is a listed, centrally cleared agreement under which the holder buys a defined right and the writer takes the opposite obligation. A call gives the holder the right to buy the underlying interest at the strike price, while a put gives the holder the right to sell it at the strike price. In this article, the practical point is that the contract does not stand alone: clearing houses, clearing members and brokers handle exercise, assignment and settlement through formal procedures. That means traders need to understand not only the economic terms such as premium, strike and expiry, but also whether the contract settles by physical delivery, cash settlement or exercise into a futures position.