An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties. After expiration date, the option becomes worthless. Therefore, the investment is lost. An option is a contract that deals with an underlying asset. For this reason, options are called derivatives, this means an option derives its value from something else. Most of the time, the underlying asset is a stock or an index.