What an option actually is
An option is a contract. It gives you the right — but never the obligation — to trade 100 shares of a stock at a fixed price, up until a fixed date.
Call: the right to buy 100 shares at the strike price. You want one when you think the share price will rise.
Put: the right to sell 100 shares at the strike price. You want one when you think the share price will fall, or you want to protect shares you already own.
Three numbers define every contract. The strike is the fixed price in the deal. The expiry is the last day the contract is alive. The premium is what you pay for it, quoted per share — so a $2.40 premium costs $240 for one contract, because one contract covers 100 shares.
When you buy an option, the premium is the most you can lose. That is the whole appeal for a beginner: the downside is known before you click. Selling options is a different business with open-ended risk, and the SavantStox sandbox deliberately does not offer it.
If the contract is worth nothing at expiry, it simply disappears and the premium is gone. Most contracts bought by beginners end exactly that way.
1. One option contract usually covers how many shares?
2. You buy a call. The most you can lose is:
3. A put gives you the right to:
Put this into practice with paper money in the sandbox.
Open my sandbox