If you use the terms “call” and “put” at cocktail parties, you are not only fashionable, but bona fide. 

A call is the right to BUY an underlying financial instrument at a selected strike price.  A put is the right to SELL a financial instrument at a strike price.   If you buy a call, you want the underlying instrument to go up, whereas, if you buy a put you want the underlying instrument to go down.  

Most options have stock as the underlying financial instrument. Indexes, ETFs or futures can also be underlying instruments.  For simplicity’s sake, the word “stock” will be used in place of the phrase “financial instrument” when referring to examples on this site.

What is a Strike Price?

With any transaction, there is a price at which one party buys and the other party sells.  With options, this transactional price is called a strike price.  For example, if you hold a $10 April call, your strike price is $10.  If you hold a $20 put, your strike price is $20.  Don’t get too crazy, though.  You can’t arbitrarily set a strike price – such as a $11.95 call.  Strike prices are organized at certain intervals, usually in $5 increments, but occasionally tighter intervals for lower priced stocks.

What are Expiration Dates?

Options do not last forever.  Eventually they expire.   In the United States, stock options expire on the third Saturday of every month.   For all practical purposes, since there are no exchanges open on Saturday, they expire at 4:00 PM EST, the third Friday of every month.  Index options expire on the Thursday before expiration Friday.  Remember that: index options expire a day before stock options. 

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