What is an option?

Options are one of Wall Street’s favorite secret weapons. But they aren’t a secret anymore.

An option is a contract that gives you the right, but not the obligation, to buy or sell an underlying asset for a fixed price by a specified date. Essentially, buying an option gives you ownership over 100 shares of stock for a short period of time. There are two types of options: calls and puts. Calls give you the right to buy an asset, while puts give you the right to sell an asset.

When the underlying asset goes up in price, a call tends to do the same. A put, on the other hand, will go up in price as the underlying asset falls.

Typically, calls are bullish, and puts are bearish. Which one you use depends on your outlook on a stock.

Options are a great way to take advantage of market volatility – and turn it into fast cash. And by purchasing cheap options on large-cap stocks, we’re able to make asymmetrical gains.