Options 101

Calls, puts, strikes, premium and time decay.

1. What an Option Is — An option is a contract that gives you the right, but not the obligation, to buy or sell a stock at a set price before a set date. Here are the basic terms, how contracts are sized and how popular options have become.
2. Calls — A call option gives the right to buy a stock at the strike price. Here is how buying a call works, how to find its breakeven and what happens to profits and losses at expiration, using a hypothetical Apple example.
3. Puts — A put option gives the right to sell a stock at the strike price. Here is how puts profit when prices fall, how they can insure a stock you own and how to find a put’s breakeven.
4. Strike Price & Expiration — The strike and expiration you choose shape an option’s cost, odds and risk. Here is what in the money and out of the money mean, how expiration cycles work and how choices change the trade.
5. Premium & Time Decay — An option’s price depends on the stock price, time left and expected volatility. Here is how time decay eats option value, why it speeds up near expiration and how volatility changes premiums.
6. Options Risks — Options can lose value fast, and some positions carry unlimited risk. Here are the main risks for buyers and sellers, how assignment works and a checklist before placing any options trade.