Option
An option gives its buyer the right, but not the obligation, to buy (a call) or sell (a put) an asset at a set price, the strike, before or on a set date. The buyer pays a premium for that right.
The buyer’s loss is limited to the premium, which is lost entirely if price does not move far enough in time. The seller collects the premium and takes on the obligation, with a potentially large loss.
Learn more: classes of instruments.