Options Education Library
Beginner to intermediate guides covering strategies, Greeks, technical indicators, and risk management.
Options Basics: Calls & Puts
BeginnerUnderstand what options contracts are, how they work, and the key terminology every trader needs to know.
What Is an Options Contract?
An options contract gives you the right — but not the obligation — to buy or sell 100 shares of a stock at a specific price (the strike price) before a specific date (the expiration date). You pay a premium upfront to acquire this right. Unlike buying stock outright, your maximum loss when buying options is always limited to the premium you paid.
Key insight: When you buy an option (Long Call or Long Put), your maximum possible loss is exactly the premium paid. You can never lose more than what you spent — making it a defined-risk strategy.
Long Call
A Long Call gives you the right to BUY 100 shares at the strike price. You profit when the stock rises above the strike price plus the premium paid (your break-even point). Example: You buy a $150 call on AAPL for $3.00 premium. Your break-even is $153. If AAPL rises to $165, your profit is ($165 - $153) × 100 = $1,200. If AAPL stays below $150 at expiration, the option expires worthless and you lose $300 (the premium).
Long Put
A Long Put gives you the right to SELL 100 shares at the strike price. You profit when the stock falls below the strike price minus the premium paid. Example: You buy a $150 put on TSLA for $4.00. Your break-even is $146. If TSLA drops to $130, your profit is ($146 - $130) × 100 = $1,600. If TSLA stays above $150 at expiration, you lose $400 (the premium).
Key Terminology
Strike Price: The price at which you can buy (call) or sell (put) the stock. Expiration Date: The last day the option is valid. Premium: The price you pay for the option contract. In the Money (ITM): A call is ITM when the stock price is above the strike. A put is ITM when the stock price is below the strike. Out of the Money (OTM): The opposite — the option has no intrinsic value yet. At the Money (ATM): When the stock price equals (or is very close to) the strike price.