What do options contracts grant an investor?

Options contracts grant investors the right to buy or sell an underlying asset at a predetermined price within a specified time frame. This inherent flexibility is key to options trading, allowing investors to speculate on price movements or hedge existing positions without having to immediately buy or sell the underlying asset.

For example, a call option gives the holder the right to purchase the underlying asset, while a put option provides the right to sell it. This capability to choose whether to execute the option based on market conditions distinguishes options contracts from other financial instruments that impose mandatory obligations.

Understanding this concept is vital for recognizing how options can be effectively utilized in investment strategies, whether for profit generation or as risk management tools.