A Detailed Explanation of Options
Additional insight into options from both the owner and seller viewpoints is provided in the more detailed explanation that follows here.
The Option Contract
An (equity) option represents a contract between a buyer and a seller. This contract is an agreement concerning the buying or selling of a stock at a reference price during a stipulated time frame. You will never see any written document for this contract, just as you do not see actual shares of stock that you purchase in your brokerage account. The existence of the option contract is implied as soon as you buy or sell an option through your broker.
We will continually refer to the buying and selling of options. In case you are wondering where all this ...