Free options trading course for beginners
Start by understanding what an option is, then learn calls, puts, and strategies step by step. Practice what you learn in the live Strategy Builder with payoff graphs and educational Greeks. No account required.
What Is an Option?
The first lesson every options beginner should read.
If you're completely new to options trading, the first thing to understand is what an option actually is.
An option is not a stock. You are not buying or selling shares when you trade an option. Instead, you are trading a financial contract that gives one person certain rights and another person certain obligations.
That may sound complicated at first, but the basic idea is surprisingly simple. Every option has a few important characteristics. Once you understand them, reading an options chain and learning strategies such as Covered Calls and Cash-Secured Puts becomes much easier.
The 6 Things You Need to Know About Every Option
- It is a contract
- There are two sides to the contract
- The buyer receives a right
- The option has a strike price
- The option has an expiration date
- The option has a premium (price)
Don't worry about memorizing these. The goal is to understand what they mean.
1. An Option Is a Contract
An option is a financial contract. When you buy shares of a company, you actually own part of that company. When you buy an option, you don't own the stock. Instead, you own a contract that gives you specific rights involving the stock.
For example, an option might give you the right to buy shares of Apple at a certain price before a certain date. The stock is called the underlying asset.
Stock → the underlying asset
Option → a contract whose value is connected to that asset
2. Every Option Has Two Sides
An option contract always has two sides: the buyer and the seller. The buyer pays money to obtain the option. The seller receives that money and takes on an obligation.
This is important because an options trade isn't simply you "trading against the market." There is another side to the contract.
3. The Buyer Gets a Right — Not an Obligation
This is one of the most important concepts for beginners.
When you buy an option, you receive a right. You are not automatically required to buy or sell the stock.
Call Option
A call gives the buyer the right to buy the underlying stock at the strike price.
Put Option
A put gives the buyer the right to sell the underlying stock at the strike price.
The seller of the option is in a different position. The seller receives the premium and takes on an obligation if the buyer exercises the option.
4. Every Option Has a Strike Price
The strike price is the price specified in the option contract. Think of it as the price at which the option allows the underlying stock to be bought or sold, according to the contract.
For example, suppose Apple is trading at $240. You could purchase a call option with a $250 strike price. That contract could give you the right to buy Apple shares at $250, subject to the contract terms.
Call → right to BUY at the strike price
Put → right to SELL at the strike price
5. Every Option Has an Expiration Date
Options don't last forever. Every option has an expiration date, which tells you when the contract ends.
An option might expire in two days, 30 days, six months, or even two years. Once it reaches expiration, the contract is no longer an active option.
This is very different from owning a stock. Shares normally don't have an expiration date. An option does.
Why does this matter? Time is an important part of an option's value. An option with months remaining generally has more time for something to happen than an otherwise similar option expiring tomorrow. Later, you'll learn about time decay and the Greek Theta.
6. Every Option Has a Premium
The premium is the price of the option. It is what the buyer pays the seller for the rights provided by the contract.
Suppose an Apple option has a premium of $15. There is one important detail: options are normally quoted per share, but one standard options contract generally represents 100 shares.
$15 premium × 100 shares = $1,500 for one standard contract, before commissions and fees.
So you are not paying $1,500 to buy Apple shares. You are paying $1,500 for the rights provided by the option contract.
Putting Everything Together
Suppose Apple is trading at $240. You find a call option with:
- Underlying: Apple
- Type: Call
- Strike price: $250
- Expiration: 30 days from now
- Premium: $15
This means you would be buying a contract that gives you the right to buy Apple at $250, according to the contract terms, until its expiration.
The premium is $15 per share. With a standard 100-share contract, that is $1,500.
Calls and Puts: The Quick Version
| Call | Put | |
|---|---|---|
| Buyer gets the right to | Buy | Sell |
| Strike price | Agreed price to buy | Agreed price to sell |
| Buyer pays | Premium | Premium |
| Seller receives | Premium | Premium |
A useful beginner shortcut is Call = right to buy and Put = right to sell. Remember that this describes the option buyer; selling an option creates a different position and obligation.
The 6 Characteristics at a Glance
Options are contracts. Every contract has a buyer and a seller. The buyer receives rights, while the seller takes on obligations. Every option has a strike price, an expiration date, and a premium.
Once these concepts become familiar, the numbers you see in an options chain will start making much more sense. Next, we'll look at how these characteristics appear in a brokerage account and how to read an options chain.
Educational only — not financial advice. Options involve risk and can result in losses. Examples are simplified and do not account for every real-world factor.
Beginner FAQ
The questions almost every new options trader asks first. Click any question to open the answer.
Why do options exist at all?
Options aren't just for speculation. In real markets, traders and investors use them to:
- Hedge — e.g. buying a put as insurance on shares you already own.
- Generate income — e.g. selling a call against stock you own (a covered call), which you'll meet in Fundamentals.
- Speculate with defined risk — a long call or put risks only the premium you paid, unlike buying shares on margin.
None of these uses require risking your whole account. Size small while you learn.
What's the difference between a "right" and an "obligation"?
This is the single most important distinction in options. The buyer pays a premium and receives a right — the choice, but never the requirement, to buy (call) or sell (put) the underlying at the strike price. If the trade doesn't work out, the buyer can simply let the option expire and walk away, losing only the premium paid.
The seller (also called the "writer") receives that premium up front and takes on an obligation instead. If the buyer chooses to exercise, the seller must honor the contract — deliver the shares (call) or buy them (put) — whether or not it's convenient. Sellers don't get to change their mind once assigned.
Who is actually on the other side of my trade?
It's a common beginner assumption that the underlying company is somehow involved — it isn't. Every option has exactly two parties: a buyer and a seller. When you buy a call or put, another trader or market maker is selling it to you, and vice versa.
The exchange and the Options Clearing Corporation (OCC) sit in the middle to guarantee both sides perform, but the actual obligation always rests with whichever trader is short (sold) the contract — never with the company whose stock underlies it.
What happens when an option reaches its expiration date?
One of three things, depending on where the stock ends up relative to the strike:
- Out-of-the-money: the option simply expires worthless. The buyer loses the premium paid; no further action is needed.
- In-the-money: most brokers automatically exercise it on the buyer's behalf, converting the contract into a stock position (100 shares per contract).
- Closed early: the buyer can sell the option before expiration to capture its remaining value instead of exercising it.
Sellers who are assigned must deliver (call) or purchase (put) the underlying shares at the strike price.
Do I have to hold an option until it expires?
No — this is another common misconception. Most options are actively traded and can be bought or sold to close a position at any time before expiration, at the option's current market price. Many traders close well before expiration specifically to avoid assignment risk or last-minute volatility.
What's the most I can lose as an option buyer?
As a buyer, your maximum loss is limited to the premium you paid, plus any commissions — nothing more, even if the stock moves dramatically against you. This defined, known-in-advance downside is one reason buying calls and puts is often taught before selling them.
Is selling (writing) options riskier than buying them?
It depends on the strategy. Selling a "naked" call — one not backed by owning the underlying shares — carries theoretically unlimited risk, since a stock price has no upper limit. Selling a covered call (against shares you already own) or a cash-secured put (backed by enough cash to buy the shares) defines and limits that risk considerably.
This is why beginners are typically taught covered strategies — like the Covered Call and Cash-Secured Put — well before naked, undefined-risk positions.
Do I need 100 shares or a lot of money to get started?
Not to buy a call or put. One contract typically controls 100 shares, but as a buyer you only pay the premium — for example, a $15 premium × 100 shares = $1,500, usually far less than buying 100 shares outright. Covered strategies, like a covered call, do require owning (or buying) those 100 shares first, which needs more capital.
Is options trading just gambling?
Options are a tool, not a strategy in themselves — how they're used determines the risk. Buying far out-of-the-money calls with money you can't afford to lose is closer to gambling. Using options to hedge a stock position, generate income against shares you already own, or speculate with a small, clearly defined amount of risk is closer to disciplined trading. The instrument is neutral; position sizing and strategy selection make the difference.
Test Your Knowledge
Six beginner questions covering what you just read. No account needed — see how much stuck.
Educational only — not financial advice. Options involve risk and can result in losses. Examples are simplified and do not account for every real-world factor.