Calls, Puts & Leverage
Options give you the right — not the obligation — to buy or sell. That right costs money and can expire worthless.
In Simple Words
A call option gives you the right to buy a stock at a set price by a set date. A put option gives you the right to sell. You pay a 'premium' for this right. If the stock doesn't move in your favor by the expiration date, the option expires worthless and you lose the entire premium. Options are leveraged — a small price move in the stock can double or wipe out the option's value.
Why It Matters
Options can amplify gains but can also expire to zero — a risk stocks don't have. Understanding leverage and time decay is essential before ever buying an option.
Key Terms
The right to buy a stock at a set price by a set date.
The right to sell a stock at a set price by a set date.
An option loses value as expiration approaches, all else equal.
How to Interpret It
If you buy a call and the stock stays flat, you still lose money — time decay erodes the option's value every day. Options require not just the right direction but the right timing.
Beginner Mistakes
- Buying options without understanding time decay and expiration.
- Risking money you can't afford to lose entirely — options can go to zero.
Try It Yourself
Open Options Play and explore the Opportunities tab. Note one signal and its risk/reward — without placing any trade.
Key Takeaway
Options are leveraged and expire. Direction is not enough — timing and risk control are essential.
Open the real tool to practice.
Knowledge Check
Choose an answer, then check.1. Unlike stocks, options can…
2. Time decay means…
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