You've probably heard someone at a party or on a subreddit bragging about a "ten-bagger" or some insane 500% gain in two days. Usually, they aren't talking about buying 100 shares of Apple and sitting on them for a decade. They’re talking about options.
But what are options in the stock market exactly?
Honestly, they’re just contracts. Think of them as a side bet on where a stock price is going, rather than owning the company itself. If you buy a stock, you own a tiny piece of a business. If you buy an option, you’re buying a "right" to do something later. It’s the difference between owning a house and having a contract that says you could buy that house for $400k next month, even if the neighborhood suddenly becomes the next Beverly Hills.
Why Everyone Is Obsessed With These Contracts Right Now
The volume is getting crazy. According to recent Cboe Global Markets data from early 2026, we’re seeing record-breaking numbers—sometimes over 100 million contracts trading in a single day across the U.S. industry. A huge chunk of that is coming from "0DTE" (zero days to expiration) options, which are basically the financial equivalent of a lottery ticket that expires at the end of the trading day.
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Most people use options for three things:
- Leverage: Controlling a lot of stock with a little bit of money.
- Hedging: Like an insurance policy for your portfolio.
- Income: Selling the "rights" to someone else to collect cash upfront (the premium).
The Call and The Put: Your Two Main Flavors
There are only two types of options. That’s it. Don't let the Wall Street jargon trick you into thinking it's more complicated.
Call Options
A Call is a bet that the price is going up. When you buy a call, you have the right to buy 100 shares of a stock at a specific price (the "strike price") before a certain date.
Example: Nvidia is trading at $130. You think it's going to $150 because of a new chip launch. You buy a $140 Call. If Nvidia hits $160, you still get to buy those shares at $140. You’re basically printing money at that point. If it stays at $130? Your contract expires worthless, and you lose whatever you paid for it.
Put Options
A Put is the opposite. It’s a bet that the price is going down. You’re buying the right to sell your shares at a set price. This is why people call them "insurance."
Imagine you own 100 shares of a volatile biotech stock. You’re worried it might crash after an FDA meeting. You buy a Put with a $50 strike price. If the stock craters to $10, you can still sell your shares for $50. You’ve capped your losses.
What Are Options In The Stock Market Terms You Actually Need
You can’t trade these things without knowing the "Greeks" and the basic mechanics, or you'll get wiped out. Fast.
- The Premium: This is the price you pay for the option. It’s non-refundable. You’re paying for time and the possibility of being right.
- Strike Price: The "agreed-upon" price where the contract kicks in.
- Expiration Date: Options don't last forever. They have a shelf life. Once that date passes, the contract is just a digital ghost.
- The Multiplier: This is the big one. One option contract almost always represents 100 shares. So, if you see an option priced at $2.00, it actually costs you $200 ($2.00 x 100).
The Stealthy Wealth Killer: Time Decay
In the stock world, we call this Theta.
Stocks can sit flat for years, and you still own the shares. Options are different. Every single day that passes, an option loses a little bit of value because there’s less time left for the "big move" to happen. It’s like a melting ice cube. If the stock doesn't move fast enough in your direction, you can lose money even if the stock goes up (for a call) or down (for a put).
Standardized vs. Non-Standardized: The Weird Stuff
Most of what you see on Robinhood or E*TRADE are "standard" options. They represent 100 shares and expire on specific Fridays.
But sometimes things get weird. If a company does a 1-for-4 reverse split—like we saw with some major players in the 2025 energy sector—the Options Clearing Corporation (OCC) has to adjust the contracts. These become "non-standard" or "adjusted" options. Suddenly, your contract might only cover 25 shares instead of 100.
These adjusted options are usually liquidity traps. The volume disappears, the "bid-ask spread" (the gap between the buying and selling price) gets huge, and it becomes nearly impossible to get out of the trade without losing your shirt. If you see "ADJ" or a "1" added to the ticker symbol, be very, very careful.
Why Most Beginners Lose Money
The leverage is a double-edged sword. It’s easy to feel like a genius when you turn $500 into $5,000 in a week. But you have to remember: options are a zero-sum game. For every person who makes $5,000 on a call, there’s someone else (usually a big institution or a "market maker") who lost that money or is hedging against it.
A common mistake is buying "Out of the Money" (OTM) calls that are way too far away from the current price. Sure, they’re cheap. You can buy a bunch for $0.10. But the statistical probability of the stock moving 30% in three days is tiny. Professional traders call this "buying lotto tickets," and the house usually wins.
Actionable Steps for Getting Started
If you’re looking to move past just "knowing" what options are and actually want to use them safely, follow this path:
- Paper Trade First: Most brokers like Thinkorswim or Interactive Brokers have "paper money" accounts. Trade options with fake money for at least a month. You’ll be shocked at how fast "Theta" eats your profits.
- Focus on "Covered Calls" Initially: If you already own 100 shares of a stock, you can sell a call against them. This is a "neutral to slightly bullish" strategy where you get paid a premium just for agreeing to sell your shares if they hit a certain price. It’s one of the few ways to generate "rent" from your portfolio.
- Check the Implied Volatility (IV): If IV is high, options are expensive (think: right before earnings). If IV is low, they’re cheap. Don't buy expensive options right before a major event unless you’re okay with a "volatility crush" where the option price drops even if you’re right about the direction.
- Use Limit Orders: Never, ever use "Market Orders" with options. The spreads are too wide. You’ll get a terrible fill price and start the trade in the red.
- Understand the Tax Implication: Most options trades are short-term capital gains, which means they’re taxed at your ordinary income rate, not the lower long-term rate. Keep that in mind for your 2026 tax planning.
Options aren't "evil" or "gambling" if you use them for risk management. But if you treat the stock market like a casino, options are the fastest way to find the exit.