Option Volatility and Pricing by Sheldon Natenberg (2nd Ed)

What are stock options and how do they work?

Options give you the right (not obligation) to buy (call) or sell (put) a stock at a specific price (strike) by a specific date (expiration). Calls profit when stocks rise; puts profit when stocks fall. Options amplify both gains and losses — you can lose 100% of your investment. Start with covered calls and cash-secured puts to learn. Never sell naked options as a beginner.

Which broker is best for options trading?

tastytrade and thinkorswim (Schwab) are the top choices for options traders. tastytrade specializes exclusively in options and futures with low per-contract fees ($1 to open, $0 to close), powerful tools, and an education-focused approach. thinkorswim offers the most robust options chain analysis and strategy builder. Interactive Brokers is best for professionals who trade large volume at very low fees.

What are options in investing?

Options are financial contracts that give the buyer the right — but not the obligation — to buy or sell an underlying asset at a specified price (the strike price) before a set expiration date. Each options contract covers 100 shares. Options can be used to speculate on price movements, hedge existing positions, or generate income. They are more complex than stocks and carry unique risks.

What is the difference between a call and a put option?

A call option gives you the right to BUY shares at the strike price before expiration — you profit if the stock rises above the strike. A put option gives you the right to SELL shares at the strike price — you profit if the stock falls below the strike. Buyers of both calls and puts have limited downside (the premium paid); sellers take on potentially large obligations.