Lesson 1 of 6 · Options 101
Calls & puts
Two contracts, opposite rights.
A call gives you the right to buy 100 shares at the strike price before expiration. A put gives you the right to sell 100 shares. You buy a right, not an obligation.
What a call pays at expiration.
This call has a strike of 100 and cost $3.00 per share, or $300 per contract. The BREAKEVEN is 103: the stock must clear that price for you to profit. Below 103 at expiry, you lose some or all of the MAX LOSS of $300.
This one is an animated diagram in the app. See it in Vero.
What a put pays at expiration.
This put also cost $3.00 per share, $300 per contract. The BREAKEVEN is 97: the stock must be below that price for you to profit at expiry. MAX LOSS is $300, capped at the premium paid.
This one is an animated diagram in the app. See it in Vero.
You expect a stock to drop from $80 to $70 over the next month. Which position fits that view?
Show the answer
B. Buy a put. A long put gains value as the stock falls. You can sell it for a profit without touching the shares, and your loss is capped at what you paid.