Options give you the right, but not the obligation, to buy or sell a stock at a specific price within a set time period. They can be used for generating income, hedging risk, or speculating on market movements.

In This Section

• What an option is and how it works
• The difference between calls & puts
• How option contracts are structured
• Key terms: strike price, expiration, premium
• How options make (or lose) money

Standard equity options have:

• Contract Size: 100 shares
• Multiplier: ×100 for pricing

Example: If an option costs $1.50, you pay $150 per contract ($1.50 × 100)

Call Option Example

Right to buy stock at strike price

• Buy AAPL $150 Call for $5
• Profit if AAPL > $155
• Maximum loss = $500

Put Option Example

Right to sell stock at strike price

• Buy AAPL $150 Put for $5
• Profit if AAPL < $145
• Maximum loss = $500

Leverage

Control more shares with less capital

• $5 option controls 100 shares
• $500 total investment
• Instead of $15,000 for shares

Limited Risk

When buying options:

• Maximum loss = premium paid
• Known risk up front
• Unlimited profit potential

Flexibility

Multiple ways to trade:

• Directional bets
• Income generation
• Portfolio protection

• Options expire worthless if your prediction is wrong
• Time decay works against buyers
• Leverage can amplify losses
• Complex strategies require active management

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