What are Call and Put Options?

A call option is the right to buy a stock at a fixed price before a set date; a put option is the right to sell at a fixed price. You pay a fee, called the premium, for that right. Calls profit when the stock rises, puts profit when it falls.

Each contract covers 100 shares and names two things: the strike price you can trade at and the expiration date. Call example: the stock is at $45 and you pay a $2 premium per share, $200 total, for a $50 call. If the stock climbs to $56, you can buy 100 shares at $50 that are worth $56, making $6 per share minus the $2 you paid, a $400 profit; if it stays under $50, the option expires worthless and you lose the $200. Put example: same stock, you pay $200 for a $40 put, and if the stock falls to $33 you can sell shares at $40 that are only worth $33, $7 per share minus the $2 cost, a $500 profit from a falling stock. Notice the premium in both: the stock must move past your strike by more than what you paid before you earn anything. Buyers can never lose more than the premium; sellers pocket it upfront and take the other side, a call seller must sell shares at the strike, a put seller must buy shares at the strike even when the market says they are worth less, so a seller's loss can be many times what they collected.

A call is a deposit locking a price on a house. Pay the builder $2,000 to hold a lot at $300,000 for 90 days: prices jump, you buy at the locked price and pocket the difference; they drop, you walk away out only the deposit. A put is car insurance: the car gets wrecked, you get made whole; nothing breaks, the money is gone, and that was the deal.