26.2 What is an option?

An option is a ‘right’ to buy or sell. Let’s compare it to the option of buying a house. You agree with the seller that you are allowed to buy the house for a fixed price. You also agree that you must buy the house within a specific period of time.  

A free option does not exist on the option market. This ‘right’ to buy/sell comes at a price. 

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