What Is an Option?
An option is a contract that gives you the right — but not the obligation — to buy or sell 100 shares of a stock at a specific price, before a specific date.
Think of it like a reservation at a restaurant. You lock in the table (price), but you don't have to show up (exercise).
Each options contract controls 100 shares. That's why premium prices are multiplied by 100 when calculating total cost.
Calls vs. Puts
There are two types of options contracts:
Call options give you the right to buy shares at the strike price. You buy calls when you're bullish — expecting the stock to go up.
Put options give you the right to sell shares at the strike price. You buy puts when you're bearish — expecting the stock to go down.
Calls vs Puts diagram
Strike Price, Expiration, and Premium
Every option has three critical components:
- Strike price — the price at which you can buy (call) or sell (put) the stock
- Expiration date — the last day the option is valid. After this, it expires worthless if not exercised
- Premium — the cost of the option contract. You pay this upfront
Example: An AAPL $180 call expiring in 30 days might cost $3.50 in premium. Since one contract = 100 shares, total cost = $350.
Reading an Options Chain
An options chain is the table of all available options for a stock. It shows:
- Bid / Ask — what buyers offer and sellers ask
- Volume — how many contracts traded today
- Open Interest — total open contracts
- Implied Volatility (IV) — the market's expectation of future price movement
Options chain example
Higher IV means more expensive options. Always check IV before buying.