A call option gives you the right to buy a stock at a specific price (strike price) before expiration. Traders buy calls when they expect the stock price to rise.

A put option gives you the right to sell a stock at a specific price before expiration. Traders buy puts when they expect the stock price to fall or want downside protection.

Strike Price: The price at which you can buy or sell

Premium: The cost of the option

Expiration: The date when the option expires

Intrinsic value is the actual profit if you exercised the option right now. For a call, it's the stock price minus the strike price. For a put, it's the strike price minus the stock price.

Time value represents the potential for the option to gain value before expiration. The more time until expiration, the higher the time value. This decays as expiration approaches.

Higher volatility increases option prices because there's more potential for large price swings. This is measured by implied volatility (IV), which reflects market expectations.

Own 100 shares of stock and sell a call option against it. You collect premium income while potentially selling your shares at a higher price. Best for neutral to slightly bullish outlook.

Own stock and buy a put option for downside protection. Acts like insurance for your shares. You pay a premium but limit your potential losses if the stock drops.

Long Call: Buy a call to profit from price increases with limited risk

Long Put: Buy a put to profit from price decreases with limited risk

Never risk more than 2-5% of your total account on a single trade. This ensures that even a series of losses won't devastate your account. Calculate your position size based on your stop loss.

Before entering any trade, calculate the maximum amount you could lose. For option buyers, it's the premium paid. For sellers, it can be much larger and should be clearly defined.

Don't put all your capital in one strategy or stock. Spread risk across different positions, timeframes, and strategies. This protects you from unexpected events in any single position.

Select a broker that offers options trading with good tools, education, and reasonable fees. You'll need to apply for options approval, which typically requires some trading experience.

Use paper trading (simulated trading) to practice without risking real money. Test your strategies, learn the platform, and build confidence before trading with real capital.

Begin with simple strategies like covered calls or cash-secured puts. Use small position sizes and gradually increase as you gain experience and confidence. Keep a trading journal to track progress.