Month: June 2025

A CALL option is a contract that gives the buyer the right, but not the obligation, to buy a stock at a specific price (called the strike price) before a certain expiration date. Investors usually buy CALL options when they believe a stock’s price will go up, because the value of the CALL increases as the stock rises above the strike.

When you sell a CALL option, you’re agreeing to sell the stock at the strike price if the buyer decides to exercise it. In return, you receive a premium upfront. If you already own the stock, this is known as a covered CALL, and it’s a popular way to earn extra income while holding your shares.

CALL options can be used for speculation, income, or hedging — but like all options, they carry risks. It’s important to understand how they work and to use them on stocks you’re comfortable trading or owning.

A PUT option is a type of financial contract that gives the buyer the right, but not the obligation, to sell a stock at a specific price (called the strike price) before a certain date. Investors typically buy PUTs when they believe a stock’s price will go down, because the value of a PUT increases as the stock drops below the strike price.

On the other hand, when you sell a PUT option, you’re agreeing to buy the stock at the strike price if the buyer decides to exercise it. In return, you get paid a premium upfront. If the stock stays above the strike price, the option expires worthless, and you keep the premium as profit.

PUT options are a powerful tool for both protecting a portfolio and generating income — but they do come with risk. That’s why they’re best used when you understand the underlying stock and are prepared to either trade or hold it if assigned.

When trading options, the “Greeks” are essential tools that help you understand how an option’s price reacts to changes in the market.

Delta measures how much the price of an option is expected to move for every $1 change in the underlying asset. For example, a call option with a delta of 0.40 means the option’s price will rise approximately $0.40 if the stock rises by $1. Delta also hints at the probability of the option finishing in the money—so a 0.40 delta implies about a 40% chance.

Theta represents time decay. Options lose value as they approach expiration, especially if they are out-of-the-money. A theta of -0.05 means the option loses $0.05 in value each day, all else being equal. This is why selling options—especially short-dated ones—can be profitable: time is working in your favor. Gamma measures how much delta changes when the stock price moves. It helps predict how fast your position’s exposure (delta) is increasing or decreasing, particularly near the money.

Vega gauges how much the option price will change with a 1% change in implied volatility (IV). If vega is 0.10 and IV increases by 1%, the option price rises $0.10. High vega is beneficial for buyers during volatile times but a risk for sellers. Understanding these four Greeks gives you deeper control over your trades and risk management—especially when combining strategies like spreads or ladders.