An option with standard features like a fixed strike price, expiration date and a single underlying asset. The option is effective at the current date and when exercised, its payoff equals the difference between the value of the underlying asset and the strike price. It is also known whether the option is a call or a put at the time the option is sold. Also see Exotic option.
Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University