Options Trading Basics: Calls, Puts, and Strategies
This guide provides an overview of options trading, covering fundamental concepts such as call and put options, as well as various options strategies. It is designed for investors seeking to understand how options contracts work and how they can be used in different market conditions to manage risk or speculate on price movements. Options trading involves significant risk and is not suitable for all investors.
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This guide serves as an introduction to options trading, explaining core concepts like call and put options and their application in various trading strategies. Options contracts give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price before a set date.
Examples3Screens60Average score73.00Updated2026-04-10Prices as ofOct 26, 2026 session
Options are derivative contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specific date. A call option gives the holder the right to buy the asset, while a put option gives the holder the right to sell it. Understanding the mechanics of options is crucial for investors looking to enhance their trading strategies.
Worked Example: These Figures Today
The companies used as examples above, with the current figures behind them. Illustrations of the metric — not a ranking, not a shortlist, and not a recommendation.
Example companies for this topic, listed in the order the guide introduces them — prices, day change and market cap as of the Oct 26, 2026 trading session (FMP quote); P/E and MoonshotScore from our latest stored data. Source: Financial Modeling Prep, Yahoo Finance.
This guide considers options strategies using SPY (SPDR S&P 500 ETF Trust), AAPL (Apple Inc.), and TSLA (Tesla Inc.) as examples of underlying assets. These instruments offer diverse option trading opportunities due to their high liquidity and market capitalization. Options on these assets can be used to implement various strategies, from basic covered calls to more complex combinations.
Questions worth resolving before acting on the screen
What are the main types of options contracts?
The two main types of options contracts are call options and put options. A call option gives the buyer the right to buy an asset at a specific price, while a put option gives the buyer the right to sell an asset at a specific price.
What is the strike price in an options contract?
The strike price is the price at which the underlying asset can be bought or sold when the option is exercised. It is a key determinant of the option's value and potential profitability.
How can options be used for hedging?
Options can be used to protect against potential losses in an investment portfolio. For example, buying put options on a stock can hedge against a decline in the stock's price.
What are some common options trading strategies?
Common strategies include buying calls or puts (directional bets), covered calls (generating income on stock holdings), and straddles or strangles (betting on volatility).
What are the risks of options trading?
Options trading involves significant risks, including the potential for rapid and substantial losses. The value of options can be highly volatile, and they may expire worthless if not managed carefully.