If you google “stock options” you are going to get something like “Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date.” Why is it that financial people want to use complex language to explain things?

In common terms, options are promises (actually a contract) to buy or sell a specific stock. There is a contract price called the Strike Price. There is an date over which this contract is valid called the Expiration Date. Finally, there is a cost for the contract that we call the Option Premium. So, that is all you need to know right? Uhh, no. But let’s get started with an actual example from my options trades.

• Stock: Palantir
• Stock Symbol: PLTR
• Strike Price: $140
• Strike Date: June 27, 2025
• Option Premium: $1.29

So, I placed this order as a limit order. Think of a sell limit order as “if the price you offer is higher than X, then I will accept the order.” I originally set this as a limit order for $1.25 on Monday. I got $129 for this option. One thing I did not mention is that most stock options are priced per share, but the contract is typically 100 shares. This could be different but if so, it will be called out specifically. If it does not say, then its 100 shares. BTW, I did not receive $129 as everyone has their hands out in this business. There are two different fees deducted from the total. Each brokerage sets their own fees so all of them could be different.

So, at the end of the week, Palantir’s stock prices dropped dramatically. In fact, it was downright painful as I had to pay $14,000 for a stock that had a value of $12,800. OUCH. But in after hours trading a huge portion of that came back as the stock finished at just over $134. Why am I doing this for my first example? Things can go wrong. But that does not mean the sky is falling. Stocks that unexpectedly drop, can also unexpectedly rise the following trading day. Know that will help you make smart choices.

I left out some additional language you need to know. A put is promise to sell the underlying stock at a price over a period of time. The underlying stock in this case was PLTR. But what I did not mention, was the direction of the trade. You can buy Puts or you can Sell them. I mentioned above that I received the Option premium, so my order was what we call “Sell to Open”. Uh? This means that I have opened a position on the option by selling the rights to the buyer. It even shows up in your portfolio. But is shows up as a -1.

Buy to Close is the logical next step. This is a way to buy back a Put option that you have sold. These options trade like stocks during market hours (no extended hours on options). Once bought, you either buy it back, let it expire, or wait for to be assigned as in my case above. Assigned means my broker debited my account $14,000 for the 100 shares of PLTR that I just bought.

Confused yet? Man, these financial people make things tough. Cause there is more…I sold a Secured Put. The contract had collateral in terms of cash in my investment account. There is also a Naked Put. You are doing the same transaction but you are doing it based on credit called Margin. PLEASE stay away from Margin accounts. In fact, do not setup you account for margins. The type of account I have is called a Level II Options account and I cannot do anything on margin.

Why is it that financial people want to use complex language to explain things?

The other tool I like to use is a Covered Call. This is an option order that is also a “Sell to Open” limit order that I use when I already own at least 100 shares of the underlying stock. Here is an example:

• Stock: Intel
• Symbol: INTC
• Strike Price: $20
• Strike Date: June 2, 2025
• Option Premium: $0.25

This was also done as a limit order at $0.25 at which it sold. This particular option was assigned and I sold several hundred shares at $20 each. But I got $25 for every 100 shares in addition to what I made on the stock itself.

Type	Buy/Sell	Description
Put	Sell to Open	You are giving your buyer the right to sell you his shares in return for a Premium that he pays you
Put	Buy to Close	This is closing out a Sell to Open position. You pay the premium on this and buy back the Put
Put	Buy to Open	You are buying the right to sell the seller’s shares in return for a Premium that you pay the seller
Put	Sell to Close	This is closing out a Buy to Open position. You receive the premium on this and sell back the Put
Call	Sell to Open	You are giving your buyer the right to buy your shares in return for a Premium that he pays you
Call	Buy to Close	This is closing out a Sell to Open position. You pay the premium on this and buy back the Call
Call	Buy to Open	You are buying the right to purchase the buyer’s shares in return for a Premium that you pay the buyer
Call	Sell to Close	This is closing out a Buy to Open position. The buyer pays you the premium on this and you sell the Call option

Wrapping Up with Key Insights

Stock Options can be confusing. The good thing is that you have resources to tell you how to do what you want to accomplish. Do not let the mass of fancy words confuse you. Questions? Please ask below!