Options.
In plain English
An option is a contract that gives the buyer the right (but not the obligation) to buy or sell 100 shares of a stock at a specified price (the strike) on or before a specified date (the expiration). Call options give the right to buy; put options give the right to sell. The buyer pays a premium up front. If the contract expires worthless (the stock never crosses the strike), the buyer loses 100% of the premium; that is the maximum loss. Sellers of options collect the premium but take on potentially large losses if the market moves against them.
01Why it matters
Options are genuinely useful for specific tasks: hedging concentrated positions, generating income on owned stock (covered calls), or making defined-risk bets. Options also account for an outsized share of beginner investing disasters because the percentage moves on contracts can be 100% in days, in either direction. Volume in zero-day-to-expiry options has exploded since 2022, and so have stories of accounts going to zero.
02The math, step by step
An investor buys 1 call option on a $100 stock with a $105 strike, 30 days out, for $2.00 per share ($200 for the contract). If the stock rises to $115, the option's intrinsic value is $10 per share = $1,000; gain on a $200 outlay is $800. If the stock stays below $105 at expiration, the option expires worthless and the $200 is gone.
03What this is NOT
Owning a stock is a position in a company. Owning an option is a position in a contract that may or may not turn into a stock position. Options expire; stocks do not.
04Receipts
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