Options Education
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The Basics
A call gives its buyer the right (not obligation) to buy 100 shares at a fixed strike price on or before expiration. A put gives the right to sell at that strike instead. The buyer pays a premium upfront for that right; the seller collects the premium and takes on the obligation if exercised.
An option is in-the-money (ITM) if exercising it right now would be profitable, at-the-money (ATM) if the strike sits right at the current price, and out-of-the-money (OTM) if exercising would be worthless. Premium is split between intrinsic value (the ITM amount) and time value (everything else, which decays to zero by expiration).
Primary Use Cases
Protect existing positions from adverse price movements. Buy puts to hedge long stock positions or calls to hedge short positions.
Control a larger position with less capital. Options provide leveraged exposure to price movements with defined risk.
Sell covered calls or cash-secured puts to generate premium income on existing holdings or available cash.
Trade on your expectations of volatility changes rather than just price direction. Profit from volatility expansion or contraction.
Achieve similar exposure to stocks with less capital, freeing up funds for other investments or risk management.
When NOT to Use Options
Related & Advanced Topics
The Greeks
Once the basics click, the Greeks (Delta, Gamma, Theta, Vega) explain exactly how an option's price reacts to changes in the underlying — see Greeks .
Volatility Risk Premium
For why option sellers have a structural statistical edge on average — see VRP .
Rolling & Adjustments
For what to do when an open position moves against you instead of closing at a loss — see Rolling Options .
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