Lesson 1 of 8
Calls & Puts
The right to buy or sell, not the obligation
Call Option
Right to BUY 100 shares at a set price
You profit when the stock goes UP
Like a reservation to buy at today's price
Pay a premium upfront for this right
Put Option
Right to SELL 100 shares at a set price
You profit when the stock goes DOWN
Like insurance on shares you own
Pay a premium upfront for this right
1 contract
100 shares
always
AAPL $260 call
~$800
premium per contract
Max loss (buyer)
Premium paid
that's it
Options expire. If AAPL stays below $260 by expiration, your call is worthless and you lose the $800 premium. That's the most you can lose as a buyer.
key concept
Buying options has defined risk (you can only lose the premium) but selling options can have unlimited risk. Beginners should only buy.
Check yourself
You buy a $260 call on AAPL for $8. At expiration, AAPL is at $250. What happens?