Options basics: calls, puts, and trading with defined risk

An option is a contract that gives you the right, not the obligation, to buy or sell 100 shares of a stock at a set price (the strike) before a set date (the expiration).

Calls and puts in one sentence each

• A call gains value when the stock goes up.
• A put gains value when the stock goes down.

When you buy either, your maximum loss is the premium you paid. That’s defined risk.

The Greeks I actually watch

• Delta — roughly how much the option moves per $1 move in the stock.
• Theta — how much value the option loses per day just from time passing.
• IV (implied volatility) — what the market expects; high IV makes options expensive.

My rules

1. Know the max loss before entering. If I can’t state it, I don’t take the trade.
2. Size so that a total loss on any single position is a small slice of the account.
3. Prefer spreads when IV is high — selling a further-out strike against the one I buy lowers cost.
4. Write down the thesis and the exit before entry. Then follow it.

The goal isn’t to be right every time. It’s to make sure being wrong is cheap.

Where to practice

Most brokers offer paper trading. Use it for a full month before risking real money, and track every trade in a journal — I sell the template I use in the shop.