An option is a contract that gives its owner the right — but not the obligation — to buy or sell 100 shares of a stock at a fixed price before a fixed date. Unlike a share, it expires.
The four building blocks
| Term | What it means |
|---|---|
| Call vs. put | A call is the right to buy; a put is the right to sell. |
| Strike price | The fixed price at which the shares change hands if exercised. |
| Expiration | The date the right ends; after it the option is worthless or exercised. |
| Premium | The price you pay (or receive) for the contract itself. |
Buyer vs. writer
The buyer pays the premium for a right and risks only that premium. The writer (seller) collects the premium up front and takes on the obligation to deliver if the buyer exercises — potentially a much larger risk.
Example: a call with a $50 strike costing $2 lets you buy the stock at $50 until expiry. If the stock rises to $60 you can buy at $50; if it stays below $50 you simply let it expire and lose the $2 premium — nothing more.
Why one contract = 100 shares
A standard U.S. equity option controls 100 shares, so a quoted premium of $2.00 actually costs $200 per contract. Mixing up the per-share quote and the per-contract cost is the most common beginner mistake.
