An option is a contract that gives its buyer the right to buy or sell a specific commodity at an agreed price within a specified period.
A key distinction is that an option provides a right, not an obligation, whereas a futures contract obliges both sides to transact at the agreed price. The seller collects a premium for granting the right, which the buyer may choose to exercise.
Options come in two main types: a Call option gives the right to buy an asset at the strike price, while a Put option gives the right to sell at the strike price. The strike price and expiration define the option's terms. Options are a flexible risk-management instrument, providing freedom of choice and protection against adverse price movements.