Understanding options

If you only trade equities, your primary trading strategies are limited to buying the stock if you are bullish or shorting the stock if you are bearish. 

By incorporating options into your strategy, you'll get more ways to trade whether you’re bullish, bearish, or even neutral on the market. They include the potential to:

• Lock in the price of a stock for a specified time period without having to commit to buying the stock.
• Buy a stock in the future at a discount to its current price.
• Protect a stock in your portfolio from a substantial price decline.
• Generate income on existing stocks in your portfolio.

It is important to understand that there are risks, costs, and trade-offs along with the potential benefits offered by any option strategy. Be sure you fully understand these aspects before entering into any option strategy.

In order to trade options, you'll also need a brokerage account that's approved for options trading. The types of options trades you can place also depend on your specific options approval level, which is based on a number of suitability factors that can vary from broker to broker.

Calls
A Call option gives the contract owner/holder (the buyer of the Call option) the right to buy the underlying stock at a specified price by the expiration date Tooltip The date at which an option no longer trades and has expired. All options eventually cease to exist and have an expiration date. . Calls are typically purchased when you expect that the price of the underlying stock may go up.

Puts
A Put option gives the contract owner/holder (the buyer of the Put option) the right to sell the underlying stock at a specified price by the expiration date. Puts are typically bought when you expect that the price of the underlying stock may go down.