Unit 1 · Level 1 · Calls & puts
The right, not the obligation
You finished the Trading course. Now we sharpen the scalpel. An option is a contract that gives you the RIGHT, but never the OBLIGATION, to buy or sell something at a fixed price before a deadline. Think of a free-cancellation hotel booking: the price is locked, but you can walk away. Or travel insurance: you pay a small fee so a disaster can't ruin you.
Free to play. No ads, no token, no account needed to start.
What you get asked
What does buying an option give you?
The word 'option' means exactly that: you have a choice. If exercising doesn't benefit you, you simply let it expire.
Match each option term to what it means.
Four words, one contract: pay the premium, get the right to trade the underlying at the strike, until expiry.
A free-cancellation hotel booking works like an option because…
That's the asymmetry: if prices soar, your locked rate is gold; if they fall, you cancel and book cheaper. The hotel carries the obligation; you hold the right.
An option buyer's maximum loss is the ___ paid for the contract.
Whatever the market does, a bought option can only cost you what you paid for it. That cap is the buyer's core deal.
Your travel insurance expired unused. Was buying it a mistake?
Protection has value even when the disaster never comes. You paid for the coverage, not the payout. Options work exactly the same way. 🐜
The rest of this unit
The right, not the obligation: the contract at the heart of every option.