Options trading basics, without the textbook.

The 30-second version

An option is a contract that gives you the right (but not the obligation) to buy or sell 100 shares of a stock at a specific price by a specific date. You pay a price (the premium) for that right. That's it. Everything else is a variation on those four words: right, price, shares, date.

Calls vs. puts

A call gives you the right to buy shares at a fixed price. You buy a call when you think the stock is going up.

A put gives you the right to sell shares at a fixed price. You buy a put when you think the stock is going down.

Each contract represents 100 shares. So if a call is priced at $2.50, you pay $250 ($2.50 × 100) for one contract. If you're wrong, the most you can lose is what you paid. If you're right, your profit can be many times what you paid — that's the leverage.

Strike price & expiration — the two dials

Every option has a strike price (the price you can buy or sell at) and an expiration date (when the contract dies).

• Strike determines how aggressive the bet is. A strike close to the current price is "near the money" and moves more with the stock. A strike far away is "out of the money" — cheaper, but needs a big move.
• Expiration determines how much time you have. More time = more premium. As expiration approaches, options lose value every single day even if the stock doesn't move. This is called time decay (or theta).

Premium = intrinsic + extrinsic

The price of an option (the premium) is made of two pieces:

• Intrinsic value — how far in-the-money the option already is. A $50 call when the stock is $52 has $2 of intrinsic value.
• Extrinsic value — everything else. Time, volatility, expectations. This is what evaporates as expiration nears.

If you ever wonder "why didn't my call go up when the stock went up?" — the answer is almost always extrinsic value bleeding off (time decay) or implied volatility crushing in (IV crush after earnings).

The greeks — only the ones that matter day-to-day

Delta

How much the option moves for every $1 the stock moves. A delta of 0.50 means the option gains roughly $0.50 for every $1 up in the stock. Loose rule: a 0.50-delta option has roughly a 50% chance of finishing in-the-money.

Theta

How much premium the option loses per day to time. Theta accelerates dramatically in the final 2 weeks before expiration. This is why "weeklies" can move so violently in both directions.

Vega & Implied Volatility (IV)

Vega measures how sensitive the option is to changes in implied volatility. IV is the market's guess at how much the stock will move. IV crush after earnings is the #1 reason directional earnings bets lose money even when you call the direction right.

The five most common beginner mistakes

1. Buying weekly out-of-the-money options. They look cheap, they almost always expire worthless. Time decay murders them.
2. Holding through earnings without understanding IV crush. You're long volatility going into the event — when IV resets after, the option can lose 30–60% even if the stock barely moves.
3. Not closing winners. An option that's up 100% can give it all back fast. Take partials.
4. Averaging down on losing options. A losing stock might recover; a losing option may have already lost its time. Different math.
5. Trading too many strikes/expirations at once. Pick one strike, one expiration, one thesis. Master a single setup before branching out.

Where to start

Don't trade options with real money until you can:

• Read a chart and identify a setup with a clear stop and target (see chart patterns).
• Calculate position size based on max loss, not gut feel (see position sizing).
• Model the trade in our options calculator first to see what the math says vs. what your hope says.