What is an options market?

The options market is defined as a marketplace where contracts are created that give the buyer the right, but not the obligation, to buy or sell a specific underlying asset (such as stocks, commodities, or currencies) at a predetermined price within a specified timeframe. This feature of having the option to execute the transaction, rather than being obligated to do so, is a defining characteristic of options contracts, making the statement detailing the contract to buy or sell at a predetermined price until a specified date the correct description of an options market.

The framework of options trading allows participants to speculate on future price movements or to hedge against potential losses on existing investments. This flexibility in trading mechanics distinguishes the options market from other types of markets, such as those for physical goods or fixed-income securities, where the obligations differ significantly. Furthermore, the reference to a market for stock exchanges only does not encapsulate the broader nature of the options market, which includes various assets beyond just stocks.