Option

An option is a contract giving the right to sell or buy a commodity, financial instrument or index, at a specified price for a certain period. Options are derivatives which allows one to put down a small stake and give oneself exposure to a much larger investment. Like futures, they can be used to minimize or maximize risk. A main difference between options and futures is that if one buys a futures contract, one has agreed to take delivery of a commodity at a given date in the future. With an option, one is not bound to take delivery. One might let the option ´lapse´.
Companies have often in the past given their top managers ´executive share options´. These enable the managers to purchase shares in the business in the future at a price fixed now. Options in this context are used as an incentive to provoke the managers into performing better.