# Option Contract

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## Definition

An option contract is a financial derivative that grants the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price (known as the strike price) on a certain date.&#x20;

## Specification

1. **Option style: European -** can be exercised only on the expiration date.
2. **Type of Options:**
   * **Call Option:** Gives the holder the right to buy the underlying asset.
   * **Put Option:** Gives the holder the right to sell the underlying asset.
3. **Underlying Asset:** The specific asset on which the option contract is based. [Gamma Options](https://gammaoptions.com) supports ETH (Ether) as the underlying asset.
4. **Base (Quote) Asset**: The specific asset used for expressing option price on the market (aka cash), typically US$. Gamma Option uses USDC.
5. **Strike Price:** The pre-determined price at which the underlying asset can be bought (in case of a call) or sold (in case of a put).
6. **Expiration Date:** The date on which the option contract is exercised. Prior to this date, the option cannot be exercised.&#x20;
7. **Premium:** The amount paid by the buyer to the seller (or writer) of the option. This is essentially the cost of obtaining the rights granted by the option.
8. **Contract Size:** The number of underlying asset units represented by the option. On Gamma Options, each option represents 1 unit of underlying asset, i.e. 1 call option grants holder the right to buy 1 ETH.
9. **Min Trade Size:** The minimum options that can be bought/sold on the market. Set to 0.1 contracts per transaction.
10. **Max Trade Size:** The maximum options that can be bought/sold on the market. Currently, there is no setting for max.
11. **Margin Requirements:** The amount of collateral required to [write or trade options on margin](https://doc.gammaoptions.com/docs/fundamentals/margin). On Gamma Options, margin requirement is set to 25% of the underlying asset, i.e. option writer can sell 1 option contract if he holds more than 0.25 ETH in value in [margin account](https://doc.gammaoptions.com/docs/fundamentals/margin/margin-account).&#x20;
12. **Settlement:** the process of settling balances between the two parties. Gamma Options is using [cash settlement](https://doc.gammaoptions.com/docs/fundamentals/settlement), where the net cash difference is settled between the two parties based on the prevailing market price and strike price.&#x20;