 Derivatives occupy an important place in modern day corporate finance. In the world of derivatives, one such item is known as options. These options play an important role in determining any firm value and any managerial decision related to the options can create and destroy the firm value. Options are basically options is a contract that gives its owners a right to buy or sell any underlying asset at a fixed price on or before a given date. Contract of an option gives a buyer a right but not an obligation to do so. The buyer uses the option only when it thinks that acting upon the right is advantageous to him or her. The example of an option can be let's see an option on a building might give its buyer under the contract a right to buy this building for 1 million dollar on or any time before the saturated prior to the third where this day of January 2019. There is a certain type of vocabulary associated with the options like exercising the option. This means that an act of buying or selling an underlying asset under an option contract strike or exercise price this is the price that is fixed in the contract and at which the holder can buy or sell the underlying asset expiration date this is the maturity date after which the option comes to an end. American option in this type of option contract it is exercisable any time before the maturity date of the option contract. European option it is different from the American option in such a manner that it can be exercisable only on the expiration of the maturity date of the option contract.