Roadmap · Level 8
Options
Contracts that give you the right (but not obligation) to buy or sell a stock at a set price.
An option is a contract giving you the right — but not the requirement — to buy or sell a stock at a specific price before a certain date.
Picture it
A call option: the right to buy at $50
Stock ends at
$70
Use it: buy at $50, worth $70
Gain
Stock ends at
$50
No reason to use it
Lose the fee
Stock ends at
$30
Let it expire
Lose the fee
A "call" option lets you buy a stock at a set price, useful if you think it'll go up. A "put" option lets you sell at a set price, useful if you think it'll go down. Options can amplify both gains and losses compared to just owning the stock directly, which makes them considerably riskier and generally better suited to more experienced investors.