Call options give the holder the right, but not the obligation to buy a financial security at a predetermined price (the strike price) during a predetermined time (exercise date).
Put options give the holder the right, but not the obligation to sell a financial security at a predetermined price during a predetermined time.
The contract is sold by the writer of the option, to an option holder. The holder of the option foregoes the premium (to the writer) but only exercises the right to buy (call option) or sell (put option) should the position be “in the money” upon expiry.
These contracts allow producers, users and investors to manage the risk associated with volatile iron ore prices, whilst minimising risk.