Before placing a trade, you need to understand the basic mechanics:
: One standard equity option contract typically controls 100 shares of the underlying stock. buying and selling calls and puts
: Realized if the stock price moves above the strike price plus the premium paid. Long Put (Bearish) Goal : You expect the stock price to fall . Right : You can sell the stock at the strike price. Risk : Limited to the premium paid. Before placing a trade, you need to understand
: The "deadline" for the contract. Unlike stocks, options do not last forever; they expire on a specific date. 2. Buying Options (Going "Long") Right : You can sell the stock at the strike price
: This is the price you pay (as a buyer) or receive (as a seller) for the contract. If an option is quoted at , the actual cost is
: Realized if the stock price drops below the strike price minus the premium paid. 3. Selling Options (Writing "Short")
When you buy an option, you have the , but not the obligation , to trade the stock. Long Call (Bullish) Goal : You expect the stock price to rise . Right : You can buy the stock at the strike price. Risk : Limited to the premium paid.