Investing in options gives you the right, but not the obligation, to sell or buy on or before a particular date and at a particular price. Options are considered a derivative security. This is because they are linked to something else.
So, you pay a “premium which is the cost of the right. You have this right up until the end date. When the end date arrives, the option will expire. In order to secure the right to buy or sell before the expiration date, you will pay a “premium”. When the expiration passes, you forfeit the premium, and the option becomes worthless, if you choose not to buy or sell.
The right to buy at a certain price by a certain date is a “call option”. The right to sell is called a “put option”.
If an option is called a “listed option” that means that it is traded on a national options exchange. Listed options each represent 100 shares of stock. They also have fixed “strike prices” and “expiration dates” – the certain price and date that we talked about earlier.
Obviously, options trading is a complicated investment form. Lots of research is required before you jump in. Options investing is risky, and not for everyone.