The Two Building Blocks of Every Options Strategy, Explained Simply
Before diving into complex options strategies, you need to master the basics. And at the core of all options trading are two simple concepts: calls and puts.
Whether you're just starting out or refreshing your fundamentals, understanding how call and put options work is essential to building confidence in the market.
A call option gives you the right (but not the obligation) to buy a stock at a set price (called the strike price) before a specific date (expiration).
Think the stock will go up? A call is your tool.
Example:
If you buy a call option for Stock XYZ with a $100 strike price and the stock rises to $120, you have the right to buy it for $100—even though it’s worth more. That difference is your profit, minus the cost of the option.
A put option gives you the right (but not the obligation) to sell a stock at a set price before expiration.
Think the stock will go down? A put might be your best move.
Example:
You own a put option on Stock XYZ with a $100 strike. If the stock drops to $80, you can still sell it for $100. Again, that difference is profit, less the premium you paid.
Calls and puts aren't about good or bad—they're about using the right tool for the job. Once you understand how to use them, you can build strategies for growth, income, or protection.
But skipping these basics? That’s how traders get burned.
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