Options are contracts that give you the right (but not the obligation) to buy or sell a stock at a fixed price by a certain date. They can hedge a portfolio, generate income, or — more often — lose money fast. Here are the basics.
Calls and Puts
A call gives you the right to buy 100 shares at the strike price. You buy calls if you expect the stock to rise. A put gives you the right to sell 100 shares at the strike. You buy puts if you expect the stock to fall or want insurance.
The Vocabulary
- Strike price: The price you can buy or sell at.
- Expiration: When the contract dies. Weekly, monthly, or LEAPS (1–2 years out).
- Premium: The price you pay (or receive) for the option.
- In the money / Out of the money: Whether exercising would be profitable today.
Profit and Loss
For a long call, profit = max(stock price − strike, 0) − premium. For a long put, profit = max(strike − stock price, 0) − premium. Our Options Profit Calculator plots the full payoff at expiration.
Max loss for a long call or put is the premium you paid. Max gain on a call is unlimited; on a put it's the strike minus the premium.
Why Most Investors Should Skip Them
Roughly 80% of long options expire worthless. The seller (usually a market maker or institutional desk) systematically wins. Unless you have a specific hedging or income strategy, buying options as a directional bet is closer to gambling than investing.
When They Make Sense
- Hedging: Buying puts on a position you want to keep but worry about.
- Covered calls: Selling calls against stock you own to generate income.
- Cash-secured puts: Selling puts on a stock you'd be happy to own at the strike.
Bottom Line
Learn the math. Use the calculator to model trades before placing them. Start small or skip options entirely. The investors who win at options usually win because they treat them as a tool, not a lottery ticket.
Run the numbers yourself
Plug your own inputs into our free calculators — no signup.