When you buy options, you use money at the outset of the trade. When you sell options , you generate money at the outset of the trade. There are some more complex strategies that involve buying and selling options at the same time. Understanding these foundational aspects of options can help you build a stronger options trading plan.
Remember, an options order contains more information than a stock order. Follow this example to learn what's similar to and what's different from a stock trade order.
Buy or sell to open 1 January 22, 2027, JKL 70 call at 3.25
| Buy or sell | Like a stock trade, this is the action. |
| To open | Not like a stock trade, Buy or Sell “to open” indicates you are creating a new position in your account. Buy or Sell “to close” indicates that you are closing an existing position. |
| 1 | Similar to a stock trade, but different. This indicates the number of contracts being traded (not the number of shares). |
| January 22, 2027 | Not like a stock trade, this is the expiration date; the date at which the option and its rights and obligations will no longer exist. |
| JKL | Similar to a stock trade, but different. This is the "underlying," which is usually 100 shares of JKL stock. |
| Multiplier | The multiplier is the value used to calculate the cost (premium paid) or proceeds (premium received). Typically, 100 is the multiplier. |
| 70 | Not like a stock trade, this is the strike price; the price at which the stock is traded if an option is exercised or assigned. |
| Call | Not like a stock trade, this is a type of option. Call options give option buyers the right to buy the stock and sellers the obligation to sell the stock. There are also put options. |
| At 3.25 | Like a stock, this is the price per share of the option. Since each contract typically represents 100 shares, the total dollar cost is $325 plus fees. |