Final answer:
The two types of options are 'call' options and 'put' options. A call option is the right to buy a specific asset, while a put option is the right to sell a specific asset. These options give the holders the opportunity to profit based on the price movements of the asset.
Step-by-step explanation:
The two types of options are:
- A "call" option: This is the right to buy a specific asset at a specified price within a certain period of time. It gives the holder the opportunity to profit if the price of the asset increases.
- A "put" option: This is the right to sell a specific asset at a specified price within a certain period of time. It gives the holder the opportunity to profit if the price of the asset decreases.
For example, suppose you have a call option to buy 100 shares of XYZ Company stock at $50 per share. If the price of XYZ Company stock increases to $60 per share within the specified time period, you can exercise the option and buy the shares at the lower price, then sell them in the market for a profit. On the other hand, if you have a put option to sell 100 shares of XYZ Company stock at $50 per share and the price of the stock decreases to $40 per share within the specified time period, you can exercise the option and sell the shares at the higher price, avoiding losses.