Options
a.k.a. Calls, Puts, Option contract
Contracts giving the right, but not the obligation, to buy (call) or sell (put) something at a set price before a set date.
An option is a contract. A call gives you the right to buy at a fixed price (the strike); a put gives you the right to sell at it. You pay a premium upfront for that right.
If the market moves your way, the option can be worth many times what you paid. If it does not, the option can expire worthless and the premium is gone. Options are a type of derivative, and they get complicated fast: time and volatility both change their price.
A simple call option
- A stock is at $100. You buy a call with a $100 strike for a $3 premium per share (one contract = 100 shares, so $300).
- Before expiry the stock jumps to $110. The call is worth at least $10 a share: $1,000.
- Profit: $1,000 − $300 = $700.
- If the stock had stayed below $100, the call would expire worthless and you would lose the $300.
Bottom line: Your loss was capped at the premium; your gain grew with the stock.
Buying cheap options far from the current price and watching them quietly expire worthless, over and over.
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