A stock option is a contract on a stock, not the stock itself. It gives you the right, not the obligation, to buy or sell that stock at a fixed price before a deadline. If you buy an option contract, you can use that right or let it expire.

Why options are counted in 100 shares

Every option contract always covers 100 shares. That means any price or result you see gets multiplied by 100. A price of $3.30 per share means $330 for the full contract.

Premium

The premium is the price of the contract. It is quoted per share, but you pay or receive the full amount: premium times 100. If you buy an option, you pay the premium upfront, and that is the most you can lose. If you sell one, you receive the premium right away.

Strike price

The strike is the fixed price the contract lets you buy or sell the stock at, no matter where the stock is trading that day. You choose the strike when you open the position, and it never changes.

Breakeven

Breakeven is the price the stock needs to reach at expiration for you to come out even. For a call, breakeven is the strike plus the premium. For a put, it is the strike minus the premium. Past that point, you start making a profit.

ITM, ATM, and OTM

These terms describe where the stock price sits compared to your strike, today.

• In the money (ITM): the contract would already have value if you exercised it today.
• At the money (ATM): the strike and the current price are nearly the same.
• Out of the money (OTM): the contract has no value right now.

These are descriptions of where a contract stands, not signals telling you whether it is a good trade.

Calls and puts

These are the only two types of options. A call gives you the right to buy the stock at the strike. A put gives you the right to sell it at the strike. What that means for you depends on whether you are buying or selling the contract.