Options Foundations

Options 101

Dive into the basics of options trading and unravel the core options building blocks of calls and puts. Options are frequently used by investors to capitalize on market movements, protect positions against losses, or generate income from existing holdings. They also come with many risks that are important to consider, and are not suitable for all investors.

Types of options

Options are contracts that give investors the right, but not obligation, to buy or sell equities at a set price at or before a specified expiration date.

There are two primary types of options:

Call options: Calls provide investors the right to buy an equity at a predetermined price at or before expiration. Investors frequently use calls to profit from anticipated stock price rises above the strike price or capitalize on a bull market.
Put options: Puts grant the right to sell an asset at a predetermined price at or before expiration, offering a safeguard against losses or a strategy for capitalizing on a downward market.

Getting started with options

Applications
Options often give investors the ability to capitalize on market movements with less capital, generate income through premiums, and protect stock holdings from adverse price movements, or add versatility to investment portfolios.
Managing risk
It’s important to always balance risk against any potential rewards. Buying options risks losing the entire cost, or premium, of the option if the market moves unfavourably. Selling options, referred to as going short, poses potential unlimited losses if the market moves against your position. Learn more about the various risks associated with options trading.
Where to start
Educate yourself on option concepts, strategies, and risks before entering positions. Leverage resources like profit and loss charts on platforms like Public to visualize potential outcomes and make informed decisions.

Brokerage services for US-listed securities and options offered through Public Investing, member FINRA & SIPC. Supporting documentation upon request.

The examples used above are fictional, and do not constitute a recommendation or endorsement of any investment.

Options are not suitable for all investors and carry significant risk. Certain complex options strategies carry additional risk. There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, among others, as compared with a single option trade.

Prior to buying or selling an option, investors must read the Characteristics and Risks of Standardized Options, also known as the options disclosure document (ODD).

Option strategies that call for multiple purchases and/or sales of options contracts, such as spreads, collars, and straddles, may incur significant transaction costs.