{"id":964458,"date":"2024-12-09T12:41:15","date_gmt":"2024-12-09T10:41:15","guid":{"rendered":"https:\/\/www.etoro.com\/?page_id=964458"},"modified":"2024-12-09T12:41:16","modified_gmt":"2024-12-09T10:41:16","slug":"what-are-options","status":"publish","type":"page","link":"https:\/\/www.etoro.com\/en-us\/academy\/videos\/what-are-options\/","title":{"rendered":"What Are Options?"},"content":{"rendered":"\n

Description<\/h2>
In this video, we explain how a call option works and give you an idea of how these instruments can be used to potentially benefit your portfolio.<\/div><\/div>

Transcript<\/h2>
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A contract that gives me access to more potential reward paired with higher risk – what does that mean?<\/p>\n\n\n\n

Options are derivative assets, meaning their value is dependent on a particular stock.<\/p>\n\n\n\n

Typically, they’re attached to 100 shares.<\/p>\n\n\n\n

Put options reserve your right to sell stock at a certain price and call options reserve your right to buy stock at a certain price.<\/p>\n\n\n\n

Calls are a little easier to understand so let’s learn how they work.<\/p>\n\n\n\n

First, call options are much cheaper than buying the 100 shares they represent – good deal!<\/p>\n\n\n\n

So what’s the catch?<\/p>\n\n\n\n

They expire. <\/p>\n\n\n\n

You could choose the expiration date you’re comfortable with, but most options expire within a few months.<\/p>\n\n\n\n

Let’s say you bought a call that reserves your right to buy shares at ten dollars for a stock currently at the price of ten dollars.<\/p>\n\n\n\n

If the price of the stock rises to fifteen dollars you\u2019d make about five dollars for each of your 100 shares:<\/p>\n\n\n\n

Five hundred dollars minus the original cost of the option.<\/p>\n\n\n\n

If you had bought the stock, you would have made fifty percent on your investment.<\/p>\n\n\n\n

But, because options are cheaper than buying 100 whole shares, you would profit a higher percentage.<\/p>\n\n\n\n

But remember: leverage means higher reward and higher risk.<\/p>\n\n\n\n

Let’s say the price swings the other direction: the stock goes from ten dollars to five dollars.<\/p>\n\n\n\n

In this case, your option would expire worthless.<\/p>\n\n\n\n

But with eToro options your loss is limited to the cost of the premium which is usually a fraction of the price of buying 100 shares.<\/p>\n\n\n\n

Now that you understand how a call option works, let’s talk about a put option.<\/p>\n\n\n\n

A put reserves your right to sell shares at a particular price.<\/p>\n\n\n\n

If you reserve the right to sell your shares at ten dollars and the price goes down to five dollars you’re once again making about five dollars per share:<\/p>\n\n\n\n

Five hundred dollars minus the original cost of the option.<\/p>\n\n\n\n

Options empower you to engage with the market in new and exciting ways.<\/p>\n\n\n\n

Check out the description for more options content and explore eToro options today.<\/p>\n<\/div>