Which of the following is the best definition of option contract?
A) Long-term financial risk arising from permanent changes in prices or other economic fundamentals.
B) A legally binding agreement between two parties calling for the sale of an asset or product in the future at a price agreed upon today.
C) A forward contract with the feature that gains and losses are realized each day rather than only on the settlement date.
D) Reducing a firm's exposure to price or rate fluctuations.
E) An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specific price for a set period of time.

Question

Quizplus · Accepted Answer

An option contract provides the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset at a specified price within a specified period, distinguishing it from other financial instruments by offering the choice rather than a requirement to buy or sell.

Which of the Following Is the Best Definition of Option