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What are options?
Options are contracts that give the right (but not the obligation) to buy or sell an asset at a specific price before a certain date.
Calls and puts
- Call option: right to buy at the strike price
- Put option: right to sell at the strike price
Key terms
- Strike price: the price in the contract
- Expiration: the last date the option is valid
- Premium: the price paid for the option
- In/Out of the money: whether exercising is profitable at current price
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Risks (important)
Options can be complex and risky. Some strategies can lose the entire premium quickly, and certain approaches (like selling uncovered options) can carry significant risk.
FAQ
Do I need options to invest? No—many investors stick to diversified funds and long-term strategies.
Why are options cheaper than stocks? Options are time-limited and can expire worthless.
Related calculators
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