Options 101: Calls and Puts

What is an option?

An option is a contract that gives you the right — but not the obligation — to buy or sell an asset at a specific price before a specific date.

There are two types:

• Call option — the right to buy the asset at the strike price.
• Put option — the right to sell the asset at the strike price.

Key terms

• Strike price — the agreed price at which you can buy/sell.
• Expiry date — the contract expires on this date.
• Premium — what you pay to buy the option contract.
• In the money (ITM) — the option has intrinsic value right now.
• Out of the money (OTM) — the option has no intrinsic value yet.

Why use options?

Options let you express a directional view on a stock or index with limited downside (you can only lose the premium you paid) and leveraged upside. This is why quantitative traders use them alongside signal systems — the signal tells you the direction; the option controls your risk.