An option is a contract that gives you the right — but not the obligation — to buy or sell 100 shares of a stock at a fixed price before a set date. That single idea, the right without the obligation, is what makes options so flexible: you can bet on direction, generate income, or protect a portfolio, all with risk you define up front.
Open the Long Call calculator →There are only two kinds of option. A call gives you the right to buy the stock at the strike price; you buy calls when you expect the price to rise. A put gives you the right to sell at the strike; you buy puts when you expect a fall or want to protect shares you own.
Each contract represents 100 shares. You can be the buyer (paying a premium for the right) or the seller/writer (collecting the premium and taking on the obligation). Combining long and short calls and puts builds every strategy that exists.
Strike price: the fixed price at which the option can be exercised. Premium: the price you pay or receive for the contract. Expiration: the date the option ends. Underlying: the stock or index the option is based on.
Two more shape an option’s price: intrinsic value (how far in-the-money it already is) and extrinsic value (the time-and-volatility premium on top), which decays to zero by expiration.
Leverage: one contract controls 100 shares for a fraction of the cost. Income: selling options (covered calls, cash-secured puts) collects premium. Hedging: a put acts like insurance on a stock position.
The key advantage over buying stock is defined risk — when you buy an option, the most you can lose is the premium, no matter how far the stock moves against you.
A call is the right to buy at the strike (bullish); a put is the right to sell at the strike (bearish or for protection).
Not if you buy options — your maximum loss is the premium paid. Selling uncovered (naked) options is where larger losses can occur.
No. Most traders simply buy and sell the contract itself for its market value before expiration rather than exercising it.
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