What is options trading?

With options trading, you can buy contracts to speculate on price movements of stock, or sell contracts to generate income.

There are two basic types of options: calls and puts.

  • A call option contract gives you the right to buy (generally) 100 shares of the underlying stock (for every contract you purchase) at a set price up until the expiration date. Someone who buys a call option thinks the price of the underlying stock is going to go upward.
  • A put option contract gives you the right to sell (generally) 100 shares of the underlying stock (for every contract you purchase) at a set price up until the expiration date. Someone who buys a put option thinks the price of the underlying stock is going to head downward.

Please note: Options involve risk and are not suitable for all investors. Before investing in options, please read the Characteristics and Risks of Standardized Options.