What is an option?
Calls, puts, premium, and the one idea the rest of options builds on.
An option is a contract: the right — but not the obligation — to buy or sell 100 shares of a stock at a fixed price (the strike), any time before a fixed date (the expiry). You pay for that right up front. That payment is the premium, and as a buyer it is the most you can lose.
Calls and puts
- Call — the right to buy 100 shares at the strike. You buy calls when you expect the stock to go up.
- Put — the right to sell 100 shares at the strike. You buy puts when you expect the stock to go down.
The 100-share multiplier
Every contract controls 100 shares. A premium quoted at $1.50 costs $150 for one contract. This leverage is why options move so much faster than the stock — for better and worse.Why trade options instead of shares
- Defined risk — as a buyer you can only lose the premium, no matter how far the stock moves against you.
- Leverage — a small premium controls a large position, so a correct call can return many times its cost.
- Flexibility — you can profit from up moves, down moves, big moves, or even a stock going nowhere (covered in the advanced pages).
Leverage cuts both ways
That same leverage means an option can lose most of its value in a day. Options also decay — they lose value every day just from time passing (see the greeks). Buying and holding is not a strategy here.Practice with zero risk
The Arena includes a full simulated options chain priced on real historical price action, with play money and a masked ticker. It is the fastest way to build intuition for everything in this guide. For a visual payoff cheat-sheet, see the options guide diagrams.