ETF options are financial derivatives that give traders the right, but not the obligation, to buy or sell shares of an exchange-traded fund (ETF) at a predetermined price within a specific time frame. These options function similarly to stock options but are based on ETFs, which represent a basket of assets like stocks, commodities, or bonds. Traders use ETF options for various strategies, such as hedging, speculation, or income generation. They provide a way to gain exposure to an entire sector or market index while managing risk. However, like all options, they involve risk, particularly with market volatility and time decay.