Option

An option is a contract trading the right — not the obligation — to buy or sell at a set price. That distinction is the whole point: exercise it when it helps, walk away when it does not.

The right to buy is a call, the right to sell a put. Expecting a rise, you buy a call; expecting a fall, a put. You pay for that right up front, and the payment is called the premium.

For the buyer, the maximum loss is capped at the premium paid. For the seller it is the reverse: they collect the premium while the potential loss is theoretically unlimited. Selling options is not casual territory for individuals.

Options also lose value as time passes. As expiry approaches the price of the right decays quickly, which is why being right about direction but wrong about timing can still produce a loss. Most individuals first meet options by selling calls against shares they own, but even that gives up the upside if the stock runs. Map out what you lose in each scenario before entering.