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In finance, an option is a financial instrument that gives its owner the right, but not the obligation, to engage in some specific transaction on an asset. Options are derivative instruments, as their fair price derives from the value of the other asset, called the underlying. The underlying is commonly a stock, a bond, a currency or a futures contract, though many other types of options exist, and options can in principle be created for any type of valuable asset.

An option to buy something is called a call; an option to sell is called a put. The price specified at which the underlying may be traded is called the strike price. The process of activating an option and thereby trading the underlying at the agreed-upon price is referred to as exercising it. Most options have an expiration date. If the option is not exercised by the expiration date, it becomes void and worthless.

In return for granting the option, called writing the option, the originator of the option collects a payment, the premium, from the buyer. The writer of an option must make good on delivering (or receiving) the underlying asset or its cash equivalent, if the option is exercised.

An option can usually be sold by its original buyer to another party. Many options are created in standardized form and traded on an anonymous options exchange among the general public, while other over-the-counter options are customized to the desires of the buyer on an ad hoc basis, usually by an investment bank.