Free course · Options · Beginner
Options for Beginners: Calls, Puts and Your First Trade
Options for beginners starts with the two contracts and ends with a first trade whose risk is written down before the order goes in. Four short lessons cover the steps between.
- Lessons
- 4
- Time
- About 60 minutes
- Level
- Beginner
- Cost
- Free, no sign-up
Who it is for
Stock investors who have never placed an options trade and want the mechanics in order before the first order goes in.
By the end you can
- Explain the right a call or put buyer holds and the duty its seller takes on
- Read bid, ask, volume, open interest, implied volatility and delta off an option chain
- Calculate the breakeven and the payoff at expiration of a bought call or put
- Fill in an options application truthfully and plan a one-contract first trade
Lessons
- 1 Call and Put Options: The Two Contracts Explained
Call and put options explained: what each gives the buyer, what the seller owes, how a per-share premium becomes a contract price, and what in the money means.
- 2 How to Read an Option Chain, Column by Column
How to read an option chain: the layout, bid and ask, last price, volume, open interest, implied volatility and delta, and what the bid-ask spread costs you.
- 3 Option Payoff at Expiration: Profit and Loss, Drawn Out
Option payoff at expiration for bought calls and puts: breakeven, profit and loss, how the short side mirrors them, and why a short call has no cap on loss.
- 4 Options Approval Levels and Your First Trade
Options approval levels explained: what FINRA Rule 2360 requires, how brokers tier approval, what the application asks, and how to plan a first trade.
An option can expire worthless while the stock beneath it barely moves. That single fact separates a contract from the shares already sitting in your account, and nearly everything a beginner has to learn follows from it: the strike, the expiration date, the premium, and the very different positions of the person who buys a contract and the person who sells it.
Who it suits
You own stocks. You know what a limit order does and how to read a quote. You have never bought a call or a put, and you’d like the mechanics straight before risking money on one.
Nothing in the lessons assumes earlier options knowledge, since each term gets defined the first time it appears and the arithmetic uses round hypothetical numbers you can follow with a pencil and nothing else. If you already trade spreads, you’ll find the material slow, and the options desk’s analysis pages will suit you better.
What to have ready
Keep your brokerage account open in another window, even if it hasn’t been approved for options yet, because most brokers will display an option chain to any account holder, and a live chain beside the second lesson makes each column far easier to remember than a description alone.
Bring a notepad or a spreadsheet as well. The third lesson has you work out payoffs by hand, and the options profit calculator is there to check your answers once you have them.
How to work through it
Go in order. The contracts come first, then the screen that quotes them, then what they pay at expiration, then the approval that lets you trade. Every lesson closes with a short quiz. Miss a question and it’s worth rereading the section it came from before moving on, since the later arithmetic leans on the earlier definitions.
Plan on about an hour altogether. Faster works. So does slower.
Where the risk sits
Options can lose value fast. A contract you buy can lose its whole premium in days if the stock moves against you, or even if it just sits still while time runs out. A call you sell without owning the shares carries a loss with no ceiling. The lessons flag both points at the moment they matter.
What it leaves out
The course stops before strategies. It covers single calls and puts bought or sold on their own, so spreads, covered calls, selling puts for income and rolling a position are all left for later. Delta gets a single sentence, while the other Greeks and the pricing models get none at all, and those subjects make far more sense once reading a chain and working out a breakeven feel automatic.
Where to go after
The glossary and analysis pages on options pick up where the last lesson ends. A good first stop is extrinsic value, the part of a premium that decays as expiration approaches. Before sizing a real position, read how many options contracts to buy. Then test what you’ve learned against the case for buying calls with more time than your idea needs.
If you’re more interested in income from the stocks you hold, the dividend income course follows the same four-lesson format.
Readers also ask
How much money do you need to start trading options?
One bought contract costs its premium times 100 shares, so an option quoted at $1.50 costs $150 plus fees. Beyond that, each broker sets its own account requirements for options approval, and selling uncovered options usually needs a margin account with higher requirements, so check your broker's rules before applying.
Are options riskier than stocks?
In one sense, yes. A bought option can lose its whole premium if the stock moves the wrong way or doesn't move far enough before expiration, while shares keep whatever value the market gives them. The loss on a bought option is capped at what you paid, though. An uncovered short call has no cap at all, so the risk depends on which side of the contract you take.