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Option
An option is a financial contract that gives its buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price under defined terms. The seller of the option takes on the corresponding obligation if the contract is exercised and assigned.
Why it matters to you
This distinction between a right for the buyer and an obligation for the seller is fundamental to understanding options. An option is not the underlying asset itself. It is a contract whose value is connected to that underlying asset.