Definition:
- The option contract is a promise to deliver what’s being optioned at a later date.
- Seller need to locate that item on the expiration date if the option is exercised by the buyer.
Types:
- debit the cash from seller account to pay the buyer for the difference between the transaction price and the settlement price.
- A future, underlying contract created when traded with another party
- Seller of a future and buyer transact at specified price (strike price)
- There are different settlements for future as well as when they stop trading