Options are Conditional Derivative Contracts

A contract with options that permits the option holder to purchase or sell a security at a chosen price is called an options conditional derivative. The sellers charge option purchasers a “premium” for the opportunity to exercise their option. To ensure that the losses do not exceed the premium, the option holders will allow the option to expire worthlessly. The risk assumed by option sellers (option writers) is far higher than that of option purchasers, and therefore the premium they charge reflects this risk.
An option is described as either a call or a put option. A call option gives the buyer the right to buy the underlying asset at a specific price, referred to as the exercise price or strike price. A put option gives the buyer the right to sell the underlying asset at a price established before the transaction is completed.