Chapter summary

• Options can be either call options or put options.

• A call option is the right to buy 100 shares of the underlying stock at the strike price, on or before the expiry date.

• A put option is the right to sell 100 shares of the underlying stock at the strike price, on or before the expiry date.

• Option buyers are speculating that the price of the underlying stock will move sufficiently before the expiry date, in order to generate a profit on the option.

• Option buyers have limited risk. Their total loss on an option contract is limited to the option premium they paid to buy the option.

• Option buyers have the right, but not the obligation, to exercise their option.

• Option sellers charge a premium for granting the right to buy or sell the underlying security.