The hardest part of learning about options trading strategies is getting used to the language. Once you nail that, you’re most of the way there.
Here are the terms you are going to need to learn to understand and use options. Keep in mind that the best way to master jargon is by applying it in real situations.
Let’s jump right in by first explaining puts and calls.
These are two of the key fixed ingredients of an option – fixed, meaning they never change. They tell us what the option stands for and what it is worth.
A call is a contract that gives its owner the right to buy 100 shares of stock at a fixed price (known in advance). A put is just the opposite, and completes the transaction. It’s a contract giving its owner the right to sell 100 shares of stock.
These concepts are the keys to exactly what an option is.
An option is a contract granting you as buyer control over 100 shares of stock. This is always the case – one option per 100 shares.
So when you buy a call, one major benefit is that you control 100 shares. This means that: