Options give the buyer (option holder) a right and the seller (option writer) an obligation to buy or sell an underlying asset at a predetermined price on or before a fixed future date.

a. A call option gives the holder the right to buy the underlying asset.

b. A put option gives the holder the right to sell the underlying asset.

c. Options can be used both to reduce risk through hedging and to speculate.

d. The option price equals the sum of its intrinsic value, which is the value if the option is exercised, plus the time value of the option.

e. The intrinsic value depends on the strike price of the option and the price of the underlying asset on which the option is written.

f. The time value of the option depends on the time to expiration and the volatility in the price of the underlying asset.