What Is an Option Contract?

An option contract is a standardized agreement between two parties, a buyer and a seller, that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a fixed price before a set date. In exchange for that right, the buyer pays the seller a premium up front.

The Fixed Terms

Unlike a private agreement, an option contract’s terms aren’t negotiated between the two parties. The exchange sets them, which is why an option can change hands between strangers in milliseconds without either side needing to agree on anything beyond the price:

Term	What it fixes
Underlying	The stock, ETF, or index the option is tied to
Strike price	The fixed price at which the right can be used
Expiration date	The last day the contract exists
Contract size	The number of shares controlled (100, for a standard US equity option)
Type	Call option (right to buy) or put option (right to sell)

Every AAPL $340 call expiring on the same date is identical, no matter who’s on either side of it. That standardization is what makes the whole options market liquid: a buyer doesn’t need to find a specific counterparty, just anyone willing to trade that same contract.

Reading One on the Chain

Example: “AAPL $340 Call, October expiry” names all four fixed terms in one line - the underlying (AAPL), the strike ($340), the type (call), and the expiration (October). The contract’s price, its premium, is the only part that moves throughout the day as AAPL’s stock price, the time remaining, and volatility all shift.

Related terms

• Call Option
• Put Option
• Contract Size
• Underlying Asset

See a real option contract priced out: open the options calculator and build a call or put with your own strike and expiration.

This article is for educational purposes only and does not constitute financial, investment, legal or tax advice. Options trading involves substantial risk and is not suitable for all investors.