A derivative contract under which one party pays a premium in return for the right (but not the obligation) to buy an asset from the other (called a call option), or to sell an asset to the other (called a put option), at a particular price (the exercise price) on a particular date (in the case of a European style option), at any time in a period before a particular date (in the case of an American style option) or on certain dates during the term of the contract (in the case of a Bermudan style option).

The underlying asset might be, for example, an interest rate, a currency, shares or a commodity. Some options provide for cash settlement.

Options are used in a specific way in the context of employees' share schemes. For more information, see Practice note, Employee share schemes: an introduction.

For an overview of options, see Practice note, Derivatives: overview: Option.