An option contract is a standardized agreement that gives you the right (but not the obligation) to buy or sell 100 shares of a stock at a fixed price, called the strike price, on or before a specific date called the expiration date.
Strike Price — The fixed price at which you can buy or sell. For example, a $100 strike means you can trade the stock at $100 per share, regardless of what the stock actually costs.
Expiration Date — The final date you can use the option. After this date, the option is worthless if you haven't sold or exercised it.
Contract Size — One option contract always controls 100 shares. If you buy one contract, you're controlling 100 shares.
Right, Not Obligation — You have the right to exercise the option, but you don't have to. You can let it expire worthless, sell it to someone else, or hold it.
Options are leveraged tools. You control 100 shares of a stock with a much smaller upfront cost than buying the stock outright. This lets you amplify both your gains and your losses.
An option contract is also a legal contract between two parties: a buyer and a seller. When you buy an option, someone is selling it to you. When that contract is exercised, the seller is obligated to fulfill their side (deliver or buy the stock at the strike price).
Next: Learn the difference between call options and put options.
