What is the option contract? How the option contract is classified on the basis of party who exercise the option and time at which the option can be exercised?

Options Contract give its holder the right, but not the obligation, to take or make delivery on or before a specified date at a stated price. But this option is given to only one party in the transaction while the other party has an obligation to take or make delivery. Since the other party has an obligation and a risk associated with making good the obligation, he receives a payment for that. This payment is called as option premium. Classification of Option Contracts Option contracts are classified into two types on the basis of which party has the option: Call option - A call option is with the buyer and gives the holder a right to take delivery. Put option - The put option is with the seller and the option gives the right to take delivery. Option Contracts are classified into two types on the basis of time at which the option can be exercised: European Option - European style options are those contacts where the option can be exercised only on the expiration date. Options traded on Indian stock exchanges are of European Style. American Option - American style options are those contacts where the option can be exercised on or before the expiration date.