Explain the following: Option Contract

An 'option contract' conveys the right, but not the obligation, to buy or sell a specific security or commodity at specified price within a specified period of time. The right to buy is referred to as a 'call option' whereas the right to sell is known as a 'put option'. An option contract comprises of its type a put or call, underlying security or commodity expiry date, strike price at which it may be exercised. Option provides the investor with the opportunity to hedge investments in the underlying shares and share portfolios and can thus reduce the overall risk related to the investments significantly.