What Are Options?

By Adam Levy – Updated Nov 22, 2024 at 11:21 AM

Key Points

Options offer strategic investment choices for buying (call) or selling (put) stock at specified prices.
Selling options can provide steady income from premiums if the stock doesn't hit the strike price.
Options trading adds risk and potential for higher returns, suitable for more experienced investors.

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An infographic comparing puts versus calls in options trading, and the risks associated with trading options. — Image source: The Motley Fool

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The options with the lowest strike price are the least risky but also the most expensive. If you buy the options with the $145 strike price, then you'd pay $1,120, which is the premium times 100 shares.

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Is options trading right for you?

Options trading is an advanced strategy most often used by sophisticated investors. Buying and selling options profitably requires plenty of research and in-depth understanding of your stock positions. If you don't want to make that type of commitment as an investor, then buy-and-hold investing may be a better approach for you to build wealth.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.