Understand and learn about the basics of call and put for trading. Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date.
Options trading can seem more complicated than it is. If you’re looking for a simple options trading definition, it goes something like this:
Options trading is the trading of instruments that give you the right to buy or sell a specific security on a specific date at a specific price.
An option is a contract that’s linked to an underlying asset, e.g., a stock or another security. Options contracts are good for a set time period, which could be as short as a day or as long as a couple of years.
When you buy an option, you have the right to trade the underlying asset but you’re not obligated to. If you decide to do so, that’s called exercising the option.
If you’re a DIY investor diving into options with a self-directed account, you’re in full control of your trading decisions and transactions. But that doesn’t mean you’re alone either.
Plenty of communities bring traders together to discuss things like current market outlook and options trading strategies.
The Different Types of Options
To form your knowledge base in options trading, start by getting familiar with the different types of options you can trade. The two basic categories of options to choose from are calls and puts.
What is a call option in stocks?
A call option gives you the right to buy an underlying security at a designated price within a certain time period (think of it as calling the underlying security to you.) The price you pay is called the strike price. The end date for exercising a call option is called the expiration date.
Call options can be American-style or European-style. With American-style options you can buy the underlying asset any time up to the expiration date. European-style options only allow you to buy the asset on the expiration date.
