Question 1

What is the difference between a call and a put?

Accepted Answer

A call option gives the holder the right to buy the underlying asset at a fixed strike price, and a put option gives the holder the right to sell at a fixed strike price. A call buyer is positioned for the price rising above the strike, a put buyer for it falling below.

Question 2

Can you lose more than you pay for an option you buy?

Accepted Answer

For a simple bought call or put, no. The most a buyer can lose is the premium paid for the contract. The option can expire worthless, but it cannot cost the buyer more than that upfront price.

Question 3

What do strike, premium, and expiration mean?

Accepted Answer

The strike is the fixed price the option lets you buy or sell at. The premium is the price you pay to own the option. The expiration is the date the contract ends, after which it is either exercised or expires worthless.