Options are the right, but not the obligation, to buy or sell the underlying future at a specific price for a predetermined time. There are two kinds of options:

1. A call is an option to buy a future or security at a specific price for a predetermined time. For example, on January 31 Robert decides to buy a call which allows him to buy a future at the specific price of 100. The option ceases trading on the predetermined time of December 15. The future is currently trading at 98. He will have the right, but will not be obligated, to purchase the future at 100 until December 15.

2. A put is an option to sell a future or security at a specific price for a predetermined time. For example, on June 21 Susan decides to buy a put which allows her to sell a future at the specific price of 100. The option will cease trading on the predetermined time of December 29. The future is currently trading at 98. She will have the right, but will not be obligated, to sell the future at 100 until December 29.

The specific price and predetermined time for a call and a put have special terms:

The strike or exercise price is the specific price where the investor may buy or sell the option. In both examples the call and put are options with a 100 strike price. Robert has the right to purchase the future at 100, whereas Susan has the right to sell the future at 100.

The expiration date of the option is the date the option will stop trading. The time to expiration is the predetermined time, or amount of time left that the option may trade till the expiration date. The expiration date for Robert's option is the day the option expires, which is December 15. The time to expiration is approximately 11 months (December IS-January 31). The expiration date for Susan's option is the day the option expires, which is December 29. The time to expiration for Susan's option is approximately 6 months (December 29-June 21).