Some offers on this page are from advertisers who pay us, which may affect which products we write about, but not our recommendations. See our Advertiser Disclosure. Options strategies range from basic positions to complex setups.
Understanding how different options trading strategies work — and how much risk each carries — is essential before executing your first order. Here's a breakdown of nine popular options strategies for beginners, ranked from lower to higher risk. Contract size: Standard equity options contracts represent 100 shares of the underlying stock.
So, for example, a quoted price of $2 per share translates to a total contract cost of $200 ($2 × 100 shares). Call option: A contract that gives you the right to buy 100 shares at a specified price. You'd buy a call if you expect the stock price to rise.
Put option: A contract that gives you the right to sell 100 shares at a specified price. You'd buy a put if you expect the stock price to fall or if you want to protect your existing shareholdings. Strike price: The guaranteed price at which you can buy or sell the underlying stock if you exercise the options contract.
Expiration date: The final day the contract remains valid. After this date, it expires and becomes worthless. Premium: The up-front cash fee paid by the buyer to the seller for the rights provided by the options contract.
In the money (ITM): An option that has built-in intrinsic value. A call option is ITM if the stock price is above the strike price, and a put option is ITM if the stock price is below the strike price. At the money (ATM): When the strike price is identical (or extremely close) to the current stock price.
Extract — continue reading at the source.
