An option is a contract about a stock's price by a certain date (the expiry). One contract usually covers 100 shares.
- A call gains value when the stock rises. It's the bullish choice for a breakout up.
- A put gains value when the stock falls. It's the bearish choice for a breakdown.
Each contract has a strike price. An "at the money" option has a strike near today's price. "In the money" means the strike is already on the winning side (below the price for a call, above it for a put).
What you pay, and what you can lose
When you buy an option you pay a premium, for example $2.00 per share, or $200 per contract. That premium is the most you can lose. Options often do expire worthless, so treat the premium as money you're prepared to lose entirely.
Delta: how much it moves with the stock
An option's delta is roughly how much its price moves when the stock moves $1. An at-the-money option is usually around 0.5: a $1 move in the stock is worth about $0.50 on the option.
- Calls rise with the stock; puts rise when it falls.
- The premium you pay is the most you can lose when buying.
- Delta ≈ how much the option moves per $1 move in the stock.
A stock breaks down out of its hub. Which option matches the setup?
Educational content only, not financial advice. See today's setups in NextShelf →