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corporate finance core topic nine financial risk management learning objective number five we want to understand how option contracts can be used to hedge cash flow and earnings risk so lets talk about an option contract its very similar to a forward contract in some way i just think of an option contract is a for contract in which one of the counterparties can just opt out of it all right opt out of delivery so uh once again whats option contracts give the right but not obligation to buy an asset at a future date at agreed upon price however when its an option contract we dont call it the forward price anymore we call it the exercise price or the strike price so again we dont use the word forward price even though its very similar to that we call it the options exercise price or strike price thats the price uh specified to be paid now there are two types of options theres only one type of a forward contract right and theres just a buyer and a seller in the form contract howe