What "option" means in finance

An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time period. The underlying asset can be anything from stocks, bonds, commodities, or currencies. Options provide investors with the ability to make profits or hedge against potential losses in the underlying asset without actually owning it. There are two types of options: call options, which give the holder the right to buy the underlying asset, and put options, which give the holder the right to sell the underlying asset.