An option gives you the right, but not the obligation, to buy or sell a stock at a set price before a set date. A call is the right to buy; a put is the right to sell. You pay a premium for that right, and your maximum loss is the premium.
Two structures are friendly to beginners. A covered call, owning stock and selling a call against it, generates income while capping upside. A protective put, buying a put on stock you own, works like insurance against a decline.
Before trading options, understand expiration, strike price, and implied volatility. Volatility is what makes options expensive or cheap, and it matters more than most beginners expect.
Key takeaways
- Options grant rights, not obligations, in exchange for premium
- Covered calls and protective puts define your risk
- Implied volatility drives how much options cost
