Getting started
Options move faster than stocks and can expire worthless. Before you ever place a trade, understand what a derivative actually is — and how calls and puts work.
About 4 minutes to read, 6 minutes for the quiz. For educational purposes only — not investment advice.
Building block 1 of 3
What it is
An option is a contract that gives you the right, but not the obligation, to buy or sell a stock at a specific price (the "strike price") by a specific date (the "expiration date"). Options are called derivatives because their value doesn't stand on its own — it's derived from the price of another asset, the underlying stock.
Why it matters
One options contract usually controls 100 shares of stock, but costs far less than buying those shares outright. That leverage cuts both ways: a small move in the stock can mean a large percentage gain or loss on the option, and unlike a stock, an option has an expiration date — if it's not "in the money" by then, it can expire completely worthless.
How you actually buy one
You'll need a brokerage account with options trading enabled, which usually requires answering a few questions about your experience and risk tolerance. The price you pay upfront for a contract is called the "premium" — that's the most a buyer can ever lose.
Building block 2 of 3
What it is
A call option gives the buyer the right to buy 100 shares of a stock at the strike price, any time before expiration. Traders buy calls when they expect a stock's price to rise.
Why it matters
If the stock rises above the strike price, the call becomes more valuable, because it lets the holder buy shares for less than they're worth on the open market. If the stock stays flat or falls, the call can lose value quickly and, at expiration, expire worthless — meaning the buyer loses the entire premium they paid.
How you actually buy one
In your brokerage's options chain, you pick an expiration date and a strike price, then "buy to open" the call for the listed premium. Most retail call buyers never actually exercise the option to buy the shares — they simply sell the contract itself if it gains value.
Building block 3 of 3
What it is
A put option gives the buyer the right to sell 100 shares of a stock at the strike price, any time before expiration. Traders buy puts when they expect a stock's price to fall — or when they already own the stock and want to protect against a drop.
Why it matters
If the stock falls below the strike price, the put becomes more valuable, because it lets the holder sell shares for more than they're worth on the open market. Investors who already own a stock sometimes buy puts as insurance: if the stock craters, the put's gain can offset some of that loss — for a known, upfront cost.
How you actually buy one
Just like a call — pick an expiration date and strike price in the options chain, and "buy to open" the put for the listed premium. Like calls, most put buyers close out the contract for a gain or loss rather than actually exercising it.
Correct!
You just finished the Options 101 Course — derivatives, calls, and puts are officially in your toolkit.
Certificate of Completion
Options 101 Course
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Learn to Love Money is for educational purposes only and does not provide personalized financial, investment, tax, or legal advice. Options are complex, leveraged instruments that can expire worthless and are not suitable for every investor. Nothing on this page is a recommendation to buy, sell, or hold any security or derivative. Always do your own research and consult a licensed professional before making financial decisions.