Essentially an option gives the holder the right but not the obligation to do something (buy underlying for a call, sell underlying for a put). You pay for this right, the price of the option, and these are exchange traded, ie they are traded on the NYSE, FTSE etc. the important thing with an option is that the holder is not obliged to exercise the contract if it means he makes a loss. Here lies the difference with a futures contract. In essence a futures contract is an agreement to buy a standardise amount of some asset for some predetermined price. The main difference is that as the holder of a futures contract has to close any open positions at time of expiry, even if this means making a loss. As well as this the buyer of the futures contract has to put forward some amount of money (collateral). Futures contracts profit and loss is settled at the end of every day, a process known as 'marking to market'. This is different to an option where no action is taken between the writing of the option and expiry (if it is a european option). Hope this helps!