An option contract is a financial agreement that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific time frame. There are two main types of options: call options, which allow the purchase of the asset, and put options, which allow the sale. These contracts are commonly used in trading to hedge against risks or to speculate on price movements. The buyer pays a premium for the option, while the seller, or writer, receives this premium in exchange for taking on the obligation if the buyer decides to exercise the option.