Types of options in terms of the underlying instruments

Financial Options:
Financial options have financial assets, such as an interest rate or a currency, as their underlying assets. There are several types of financial options:

Stock Option
Also known as equity options, these are a privileges sold by one party to another. Stock options give the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price during a certain period of time or on a specific date.

Index Option
A call or put option on a financial index, such as the Nasdaq or S&P 500. Investors trading index options are essentially betting on the overall movement of the stock market as represented by a basket of stocks.

Bond Option
An option contract in which the underlying asset is a bond. Other than the different characteristics of the underlying assets, there is no significant difference between stock and bond options. Just as with other options, a bond option allows investors to hedge the risk of their bond portfolios or speculate on the direction of bond prices with limited risk.

A buyer of a bond call option is expecting a decline in interest rates and an increase in bond prices. The buyer of a put bond option is expecting an increase in interest rates and a decrease in bond prices.

Interest Rate Option
Option in which the underlying asset is related to the change in an interest rate. In general, the call buyer of an interest rate option expects interest rates will go up, while the put buyer hopes rates will go down.

Currency Option
A contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified price during a specified period of time. Investors can hedge against foreign currency risk by purchasing a currency option put or call.

Options on Futures
Like other options, an option on a futures contract is the right but not the obligation, to buy or sell a particular futures contract at a specific price on or before a certain expiration date. A call option gives the holder (buyer) the right to buy (go long) a futures contract at a specific price on or before an expiration date. The holder of a put option has the right to sell (go short) a futures contract at a specific price on or before the expiration date.

Commodity Options
These are options in which the underlying asset is a commodity such as wheat, gold, oil and soybeans.