Introduction to Options

What are Options??

Options are a binding contract that give investors the right or obligation to control 100 shares of an underlying (i.e. stocks, ETFs, indexes, etc) at a certain price point (strike price) within a given time frame – known as expiration date.  There are two kinds of options contracts – Calls and Puts.

Call Option - As a buyer of a call option you have the right, but not the obligation, to purchase 100 shares of an underlying (stock, ETF, etc. – i.e. AAPL) at a predetermined price before contract expiration.  The exact opposite is true for call option sellers, where you have an obligation to deliver (sell) 100 shares of an underlying at a predetermined price.  By buying a call option, you may have the opportunity to purchase stock below its current market price!!

Put Option - As a buyer of a put option you have the right, but not the obligation, to sell 100 shares of an underlying (stock, ETF, etc. – i.e. MSFT) at a predetermined price before contract expiration.  The exact opposite is true for put option sellers, where you have an obligation to accept (buy) 100 shares of an underlying at a predetermined price. By buying a put option, you may have the opportunity to sell stock above its current market price!!

**Buying/Selling options does not mean that each time you trade an option you have to buy/sell 100 shares of the underlying.  Option values will increase/decrease as the underlying moves, so the idea here is to buy/sell options in order to take advantage of that move.