{"id":9717,"date":"2023-04-26T16:25:06","date_gmt":"2023-04-26T16:25:06","guid":{"rendered":"https:\/\/www.wallstreetzen.com\/blog\/?p=9717"},"modified":"2024-09-02T17:44:58","modified_gmt":"2024-09-02T17:44:58","slug":"types-of-options","status":"publish","type":"post","link":"https:\/\/www.wallstreetzen.com\/blog\/types-of-options\/","title":{"rendered":"The 2 Different Types of Options Contracts To Learn"},"content":{"rendered":"\n<p>The idea of earning a living as an options trader is appealing. <\/p>\n\n\n\n<p>But you\u2019ve got to walk before you can run. It\u2019s essential to understand the fundamentals before you trade, like the different types of options and key options trading strategies. <\/p>\n\n\n\n<p>Let\u2019s start with the 2 key types of options: calls and puts. <\/p>\n\n\n\n<p>In this article, I\u2019ll introduce you to the two different types of options that act as the foundation for all types of options trading.<\/p>\n\n\n\n<p>Then, I\u2019ll offer up a little education on what you can do with this knowledge, including common options trading strategies and how most options traders actually make money. But first\u2026<\/p>\n\n\n    <div id=\"callout-box-block_38a037d800577a0dd3e0bba28dc2f071\" class=\"callout-box promo\">\n        <div class=\"callout-box__icon-wrapper\">\n            <svg focusable=\"false\" class=\"callout-box__icon promo\" viewBox=\"0 0 24 24\" aria-hidden=\"true\">\n                <path d=\"M21.41 11.58l-9-9C12.05 2.22 11.55 2 11 2H4c-1.1 0-2 .9-2 2v7c0 .55.22 1.05.59 1.42l9 9c.36.36.86.58 1.41.58.55 0 1.05-.22 1.41-.59l7-7c.37-.36.59-.86.59-1.41 0-.55-.23-1.06-.59-1.42zM5.5 7C4.67 7 4 6.33 4 5.5S4.67 4 5.5 4 7 4.67 7 5.5 6.33 7 5.5 7z\"><\/path>            <\/svg>\n        <\/div>\n        <div class=\"callout-box__content\"><p><strong>Looking to uplevel your options trading?<\/strong><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p><a href=\"https:\/\/www.wallstreetzen.com\/go\/benzinga-options\" target=\"_blank\" rel=\"noopener\">Benzinga\u2019s option alert service<\/a>\u00a0is the best way to trade and learn about options.<\/p>\n<p><!-- \/wp:paragraph --> <!-- wp:paragraph --><\/p>\n<p>This top-notch options alert service is led by options trader and mentor <a href=\"https:\/\/www.wallstreetzen.com\/go\/benzinga-options\" target=\"_blank\" rel=\"noopener\">Nic Chahine<\/a>.<\/p>\n<p><!-- \/wp:paragraph --> <!-- wp:paragraph --><\/p>\n<p>Chahine not only shares his high-conviction and highly profitable options trades, but he also provides thorough analysis so you can learn as you trade. Here\u2019s what you get:<\/p>\n<p><!-- \/wp:paragraph --> <!-- wp:list --><\/p>\n<ul><!-- wp:list-item --><\/p>\n<li>High-probability option trades<\/li>\n<p><!-- \/wp:list-item --> <!-- wp:list-item --><\/p>\n<li>Transparent access to trade explanations and analysis<\/li>\n<p><!-- \/wp:list-item --> <!-- wp:list-item --><\/p>\n<li>Market analysis<\/li>\n<p><!-- \/wp:list-item --> <!-- wp:list-item --><\/p>\n<li>Education<\/li>\n<p><!-- \/wp:list-item --><\/ul>\n<p><!-- \/wp:list --> <!-- wp:paragraph --><\/p>\n<p>Plus, for a limited time, you can get free access to the next <a href=\"https:\/\/www.wallstreetzen.com\/go\/benzinga-options\" target=\"_blank\" rel=\"noopener\">Benzinga Boot Camp<\/a>\u00a0to learn how to trade stocks and options like a pro.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<\/div>\n    <\/div>\n\n\n\n<p><\/p>\n\n\n\n<div class=\"is-layout-flex wp-block-buttons\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link has-vivid-cyan-blue-background-color has-background wp-element-button\" href=\"https:\/\/www.wallstreetzen.com\/go\/benzinga-options\" target=\"_blank\" rel=\"noopener\"><strong>Check out Benzinga Options<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h.vncratcyb0uz\"><strong>What are Options?<\/strong><\/h2>\n\n\n\n<p>Options are a type of contract that gives you the right, but not the obligation, to buy or sell a referenced, underlying asset, like a stock. <\/p>\n\n\n\n<p>As an option contract buyer, you\u2019re granted this right because you pay a <strong>premium <\/strong>to the option seller. <\/p>\n\n\n\n<p>Think of the premium as the cost to hold the option. Regardless of what happens with the option, whether it is exercised or expires worthless, <strong>the option seller always keeps the premium<\/strong>.<\/p>\n\n\n\n<p>Options are considered derivatives because they derive their price from an underlying security. <\/p>\n\n\n\n<p>For example, you can purchase or sell Apple options. These are contracts whose price is tied to Apple\u2019s (<a href=\"https:\/\/www.wallstreetzen.com\/stocks\/us\/nasdaq\/aapl\" target=\"_blank\" rel=\"noopener\">NASDAQ: AAPL<\/a>) stock.<\/p>\n\n\n\n<p>There are two types of stock options: calls and puts (or call options and put options). <\/p>\n\n\n\n<p>Before we get to what they are and how they work, you need to understand a few more things about options\u2026<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h.pwo7qujm3yzb\"><strong>More Options Mechanics<\/strong><\/h2>\n\n\n\n<p>Every option contract includes a <strong>strike price<\/strong>&nbsp;or a milestone price on the underlying security. It\u2019s the price level that the buyer and seller use as a reference for determining profit and loss on the contract.<\/p>\n\n\n\n<p>The current price of the underlying is referred to as the <strong>spot price<\/strong>. Depending on the type of contract, the spot price must be above or below the strike price to be eligible to be exercised. <\/p>\n\n\n\n<p>\u201cExercised\u201d in this context means the owner of the contract can execute a trade on the underlying shares. <\/p>\n\n\n\n<ul>\n<li>Exercising a <strong>call option<\/strong>&nbsp;gives the owner the right, but not the obligation, to <strong>BUY <\/strong>the underlying security.<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Exercising a <strong>put option <\/strong>gives the owner the right, but not the obligation, to <strong>SELL <\/strong>the underlying stock.<\/li>\n<\/ul>\n\n\n\n<p>When an option is in a position to be \u2018exercised,\u2019 it necessarily means the option has value to the owner. We refer to this as the option being \u2018at-the-money\u2019 or \u2018in-the-money.\u2019 <\/p>\n\n\n\n<ul>\n<li><strong>At-the-money<\/strong>&nbsp;means the underlying security price is the <strong>same <\/strong>as the strike price. This is true whether the contract is a call or put option.<\/li>\n<\/ul>\n\n\n\n<ul>\n<li><strong>In-the-money<\/strong>&nbsp;means the option contract has value to the owner: <\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Call options: the underlying security is <strong>above <\/strong><strong>the strike price<\/strong>.<\/li>\n\n\n\n<li>Put options: the underlying security is <strong>below <\/strong><strong>the strike price<\/strong>.<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Out-of-the-money means the options contract doe <strong>not <\/strong>have value to the owner:<\/li>\n<\/ul>\n\n\n\n<ul>\n<li>Call options: the underlying security is <strong>below <\/strong><strong>the strike price<\/strong>.<\/li>\n\n\n\n<li>Put options: the underlying security is <strong>above <\/strong><strong>the strike price<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p>An option only becomes valuable to the owner once it\u2019s at- or in-the-money. Otherwise, the option cannot be exercised. Here&#8217;s more info on <a href=\"https:\/\/www.wallstreetzen.com\/blog\/in-the-money-vs-out-of-the-money\/\" target=\"_blank\" rel=\"noopener\">ITM vs OTM options<\/a>.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/Untitled-61.png\" alt=\"Untitled\"\/><\/figure><\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"h.uk3lpwm6a65x\"><strong>The 2 Types of Options:<\/strong><\/h2>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h.5icvkngsty7c\">There are two types of stock options: call options and put options. Before we dig deeper, a few basics:<\/h4>\n\n\n\n<ul>\n<li>Traders can buy or sell both calls and puts. <\/li>\n\n\n\n<li>Like stocks, when someone buys a call or put option, we say they are <strong>long <\/strong>the option (i.e., long Apple options). <\/li>\n\n\n\n<li>Alternatively, when someone sells a call or put, we say they are <strong>short<\/strong>&nbsp;the option.<\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h.po19em77hbfb\"><strong>1. Calls<\/strong><\/h4>\n\n\n\n<p>As noted earlier, options give you the right but not the obligation to buy or sell the underlying security. Call options, specifically, refer to the right to <strong>buy <\/strong>the underlying security. <\/p>\n\n\n\n<p>The owner (purchaser) of the call option has the right to buy the underlying stock provided the conditions necessary to exercise the contract are fulfilled.<\/p>\n\n\n\n<ul>\n<li><strong>Call option buyers<\/strong>&nbsp;are considered <strong>bullish<\/strong>&nbsp;since they expect the underlying security price to <strong>rise<\/strong>.<\/li>\n\n\n\n<li><strong>Call option sellers<\/strong>&nbsp;are considered <strong>bearish or neutral<\/strong>&nbsp;since they expect the underlying security price to <strong>fall or remain flat<\/strong>. <\/li>\n<\/ul>\n\n\n    <div id=\"callout-box-block_b5a498791c74aceeb710087bd4ffd388\" class=\"callout-box info\">\n        <div class=\"callout-box__icon-wrapper\">\n            <svg focusable=\"false\" class=\"callout-box__icon info\" viewBox=\"0 0 24 24\" aria-hidden=\"true\">\n                <path d=\"M12 3c-.46 0-.93.04-1.4.14-2.76.53-4.96 2.76-5.48 5.52-.48 2.61.48 5.01 2.22 6.56.43.38.66.91.66 1.47V19c0 1.1.9 2 2 2h.28c.35.6.98 1 1.72 1s1.38-.4 1.72-1H14c1.1 0 2-.9 2-2v-2.31c0-.55.22-1.09.64-1.46C18.09 13.95 19 12.08 19 10c0-3.87-3.13-7-7-7zm2 16h-4v-1h4v1zm0-2h-4v-1h4v1zm-1.5-5.59V14h-1v-2.59L9.67 9.59l.71-.71L12 10.5l1.62-1.62.71.71-1.83 1.82z\"><\/path>            <\/svg>\n        <\/div>\n        <div class=\"callout-box__content\"><p>Since option sellers receive a premium payment, they get paid even if the underlying stock price does not drop. That\u2019s why a trader neutral on, for example, Apple\u2019s stock, may decide to sell call options.<\/p>\n<\/div>\n    <\/div>\n\n\n\n<p>Buying calls is one of the simplest <a href=\"https:\/\/www.wallstreetzen.com\/blog\/bullish-option-strategy\/\" target=\"_blank\" rel=\"noopener\">bullish option strategies<\/a>, though there are many others to choose from.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h.4c6d4wwzkm5z\"><strong>2. Puts<\/strong><\/h4>\n\n\n\n<p>Alternatively, put options give you the right to <strong>sell <\/strong>the underlying stock if particular conditions are met. <\/p>\n\n\n\n<ul>\n<li><strong>Put option buyers <\/strong>are considered <strong>bearish<\/strong>&nbsp;since they expect the underlying security price to <strong>fall<\/strong>.<\/li>\n\n\n\n<li><strong>Put option sellers <\/strong>are considered <strong>bearish or neutral<\/strong>&nbsp;since they expect the underlying security price to <strong>rise or remain relatively flat<\/strong>. <\/li>\n<\/ul>\n\n\n    <div id=\"callout-box-block_d988b05d1f3ce39478a08e6920064171\" class=\"callout-box info\">\n        <div class=\"callout-box__icon-wrapper\">\n            <svg focusable=\"false\" class=\"callout-box__icon info\" viewBox=\"0 0 24 24\" aria-hidden=\"true\">\n                <path d=\"M12 3c-.46 0-.93.04-1.4.14-2.76.53-4.96 2.76-5.48 5.52-.48 2.61.48 5.01 2.22 6.56.43.38.66.91.66 1.47V19c0 1.1.9 2 2 2h.28c.35.6.98 1 1.72 1s1.38-.4 1.72-1H14c1.1 0 2-.9 2-2v-2.31c0-.55.22-1.09.64-1.46C18.09 13.95 19 12.08 19 10c0-3.87-3.13-7-7-7zm2 16h-4v-1h4v1zm0-2h-4v-1h4v1zm-1.5-5.59V14h-1v-2.59L9.67 9.59l.71-.71L12 10.5l1.62-1.62.71.71-1.83 1.82z\"><\/path>            <\/svg>\n        <\/div>\n        <div class=\"callout-box__content\"><p>Like call option sellers, put option sellers can be bearish or neutral. They get paid even if the underlying stock stays flat. In fact, they get paid a premium no matter what occurs with the stock price.<\/p>\n<\/div>\n    <\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/Untitled-62.png\" alt=\"Untitled\"\/><\/figure><\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"h.i0t9ojhx9782\"><strong>Why Trade Options?<\/strong><\/h2>\n\n\n\n<p>There are several reasons to trade options. Some of the most common include:<\/p>\n\n\n\n<ul>\n<li>To potentially earn additional income by collecting premiums (i.e., <a href=\"https:\/\/www.wallstreetzen.com\/blog\/what-is-sell-call-option\/\" target=\"_blank\" rel=\"noopener\">selling call options<\/a>&nbsp;or <a href=\"https:\/\/www.wallstreetzen.com\/blog\/selling-put-options-for-a-living\/\" target=\"_blank\" rel=\"noopener\">selling put options<\/a>).<\/li>\n\n\n\n<li>To speculate on the direction of a stock. Options are a form of leverage, meaning traders can make outsized bets unavailable to them when buying the underlying security directly.<\/li>\n\n\n\n<li>To hedge against a potential loss. For example, if you hold Apple (<a href=\"https:\/\/www.wallstreetzen.com\/stocks\/us\/nasdaq\/aapl\" target=\"_blank\" rel=\"noopener\">NASDAQ: AAPL<\/a>)&nbsp;shares but think the stock may fall in the near term, you might decide to buy put options as insurance. <\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/Untitled-63.png\" alt=\"Untitled\"\/><\/figure><\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"h.xo74y8syfa43\"><strong>Common Options Strategies<\/strong><\/h2>\n\n\n\n<p>There are countless options strategies available, from straightforward covered calls to more exotic, complex trades involving numerous contracts.<\/p>\n\n\n\n<p>Here are a few common types of options trading:<\/p>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table class=\"mtr-table mtr-thead-th\"><thead><tr><th data-mtr-content=\"Goal\" class=\"mtr-th-tag\"><div class=\"mtr-cell-content\">Goal<\/div><\/th><th data-mtr-content=\"View\" class=\"mtr-th-tag\"><div class=\"mtr-cell-content\">View<\/div><\/th><th data-mtr-content=\"Strategy\" class=\"mtr-th-tag\"><div class=\"mtr-cell-content\">Strategy<\/div><\/th><th data-mtr-content=\"How to Trade?\" class=\"mtr-th-tag\"><div class=\"mtr-cell-content\">How to Trade?<\/div><\/th><\/tr><\/thead><tbody><tr><td data-mtr-content=\"Goal\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Collect additional income<\/div><\/td><td data-mtr-content=\"View\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Neutral \/ Bearish<\/div><\/td><td data-mtr-content=\"Strategy\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Covered Call<\/div><\/td><td data-mtr-content=\"How to Trade?\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Sell a call on shares of an underlying security you already own.<\/div><\/td><\/tr><tr><td data-mtr-content=\"Goal\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Speculate<\/div><\/td><td data-mtr-content=\"View\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Bullish OR Bearish<em>(Betting the stock\u2019s price will make a meaningful move)<\/em><\/div><\/td><td data-mtr-content=\"Strategy\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Straddle<\/div><\/td><td data-mtr-content=\"How to Trade?\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Buy a call AND a put at the same strike price. If the stock moves sufficiently one way, the buyer can profit.<\/div><\/td><\/tr><tr><td data-mtr-content=\"Goal\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Hedging<\/div><\/td><td data-mtr-content=\"View\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Neutral to Bearish<\/div><\/td><td data-mtr-content=\"Strategy\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Protective Put<\/div><\/td><td data-mtr-content=\"How to Trade?\" class=\"mtr-td-tag\"><div class=\"mtr-cell-content\">Buy a put on shares you own to protect against the downside.<\/div><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n    <div id=\"callout-box-block_a4c55dca11319c628055d7ec8c8692fb\" class=\"callout-box promo\">\n        <div class=\"callout-box__icon-wrapper\">\n            <svg focusable=\"false\" class=\"callout-box__icon promo\" viewBox=\"0 0 24 24\" aria-hidden=\"true\">\n                <path d=\"M21.41 11.58l-9-9C12.05 2.22 11.55 2 11 2H4c-1.1 0-2 .9-2 2v7c0 .55.22 1.05.59 1.42l9 9c.36.36.86.58 1.41.58.55 0 1.05-.22 1.41-.59l7-7c.37-.36.59-.86.59-1.41 0-.55-.23-1.06-.59-1.42zM5.5 7C4.67 7 4 6.33 4 5.5S4.67 4 5.5 4 7 4.67 7 5.5 6.33 7 5.5 7z\"><\/path>            <\/svg>\n        <\/div>\n        <div class=\"callout-box__content\"><p><!-- wp:paragraph --><\/p>\n<p>Wanna dive into options trading strategies?<\/p>\n<p><!-- \/wp:paragraph --> <!-- wp:paragraph --><\/p>\n<p>Check out <a href=\"https:\/\/www.wallstreetzen.com\/go\/optionable-dividends\" target=\"_blank\" rel=\"noopener\">Selling Options for Income<\/a>, an at-your-own-pace options course.<\/p>\n<p>In this course, you\u2019ll learn everything you need to know to get started \u2026 even if you\u2019re a total newbie. This highly-actionable course enables you to get started trading options on the very first day.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<\/div>\n    <\/div>\n\n\n\n<p><\/p>\n\n\n\n<div class=\"is-layout-flex wp-block-buttons\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link has-vivid-cyan-blue-background-color has-background wp-element-button\" href=\"https:\/\/www.wallstreetzen.com\/go\/optionable-dividends\" target=\"_blank\" rel=\"noopener\"><strong>Check out Selling Options for Income<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h.gv66gvg292ke\"><strong>Payoffs for Options: Calls and Puts<\/strong><\/h2>\n\n\n\n<p>Option <strong>payoff <\/strong>is the amount received or paid. <\/p>\n\n\n\n<p>Option <strong>profit <\/strong>(loss) is the net amount received or paid after accounting for the premium.<\/p>\n\n\n\n<p>Payoffs and profits can be confusing, so let\u2019s look at a straightforward trading strategy: buying a call option.<\/p>\n\n\n\n<ul>\n<li>Call buyer <strong>payoff <\/strong>= spot price<strong>&nbsp;less <\/strong>strike price<\/li>\n<\/ul>\n\n\n\n<p>Think of it this way. If you own the call option, you expect the price to rise. If the spot price (current stock price) when the contract is exercised is $110, and the strike price is $100, then the payoff equals $10 ($110 less $100).<\/p>\n\n\n\n<ul>\n<li>Call buyer <strong>profit <\/strong>= payoff <strong>less <\/strong>premium <\/li>\n<\/ul>\n\n\n\n<p>Since you had to pay for the option contract, the difference between the spot and the strike price doesn\u2019t reflect the actual profit. <\/p>\n\n\n\n<p>Instead, you must also subtract the premium paid. In the example above, imagine the premium is $2. Therefore your profit is $8 ($10 payoff less $2 premium).<\/p>\n\n\n\n<p>When purchasing a call option, your potential loss amount is limited. Regardless of how the underlying stock performs, the <strong>most you can lose is the price paid for the premium<\/strong>.<\/p>\n\n\n\n<p>Of course, if the price of the underlying rises, your payoff will increase. Once the underlying crosses the strike price, the option is in-the-money, meaning it\u2019s profitable to the owner.<\/p>\n\n\n\n<p>While the downside of owning a call option is limited, the upside is unlimited. That is, there is no ceiling on how high the underlying stock price can reach and, therefore, no cap on your potential profit. <\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/Untitled-64.png\" alt=\"Untitled\"\/><\/figure><\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"h.uvhjoq3ygjzp\"><strong>Other Types of Options<\/strong><\/h2>\n\n\n\n<p>We\u2019ve mostly covered option contracts as they relate to stocks, but there are different options as well.<\/p>\n\n\n\n<p>The following are some other forms options you might come across.<\/p>\n\n\n\n<p><strong>1. Index Options:<\/strong> These are similar to stock options, but the underlying security is not a single company stock but a broad index. A popular index used as an underlying security is the S&amp;P 500. For example, traders might buy a call option on the SPDR S&amp;P 500 ETF.<\/p>\n\n\n\n<p><strong>2. Forex\/Currency Options:<\/strong> Instead of a stock, you can buy or sell options on a particular currency, like the US dollar. <\/p>\n\n\n\n<p><strong>3. Commodity Options:<\/strong> Like currency or stocks, you can buy and sell option contracts on particular commodities, like gold.<\/p>\n\n\n\n<p><strong>4. Employee Stock Options:<\/strong> This is often what people often think of when they hear \u201coptions.\u201d But they\u2019re different options than the contracts we\u2019ve been talking about.<br><br>Employee stock options provide employees equity in the company should specific criteria be met. Typically, companies enact a vesting period before the options can be exercised.<\/p>\n\n\n\n<p>With these options, there\u2019s no strike price. Instead, a company will allow employees to purchase shares at a predetermined price after a certain period. Employee stock options are meant to incentives the employee, aligning interests with the employer.<\/p>\n\n\n    <div id=\"callout-box-block_437439825de3762441288e46106455c5\" class=\"callout-box promo\">\n        <div class=\"callout-box__icon-wrapper\">\n            <svg focusable=\"false\" class=\"callout-box__icon promo\" viewBox=\"0 0 24 24\" aria-hidden=\"true\">\n                <path d=\"M21.41 11.58l-9-9C12.05 2.22 11.55 2 11 2H4c-1.1 0-2 .9-2 2v7c0 .55.22 1.05.59 1.42l9 9c.36.36.86.58 1.41.58.55 0 1.05-.22 1.41-.59l7-7c.37-.36.59-.86.59-1.41 0-.55-.23-1.06-.59-1.42zM5.5 7C4.67 7 4 6.33 4 5.5S4.67 4 5.5 4 7 4.67 7 5.5 6.33 7 5.5 7z\"><\/path>            <\/svg>\n        <\/div>\n        <div class=\"callout-box__content\"><p><!-- wp:paragraph --><\/p>\n<p><strong>Options tools of the trade<\/strong><\/p>\n<ul>\n<li>The best options alerts + education: <a href=\"https:\/\/www.wallstreetzen.com\/go\/benzinga-options\" target=\"_blank\" rel=\"noopener\">Benzinga Options<\/a><!-- \/wp:list-item --> <!-- wp:list-item --><\/li>\n<li>The best options trading brokerage: <a href=\"https:\/\/www.wallstreetzen.com\/go\/etoro-sign-up?subaffiliateid=blog-sell-call-option\" target=\"_blank\" rel=\"noopener\">eToro<\/a>*<!-- \/wp:list-item --> <!-- wp:list-item --><\/li>\n<li>The best digital options course: <a href=\"https:\/\/www.wallstreetzen.com\/go\/optionable-dividends\" target=\"_blank\" rel=\"noopener\">Selling Options for Income<\/a><!-- \/wp:list-item --> <!-- wp:list-item --><\/li>\n<li>The best options charting platform: <a href=\"https:\/\/www.wallstreetzen.com\/go\/tradingview-pro\" target=\"_blank\" rel=\"noopener\">TradingView<\/a><\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- \/wp:list --><\/p>\n<\/div>\n    <\/div>\n\n\n<div class=\"wp-block-code-snippets-content\"><div class=\"disclaimer\">\r\n\t<p>eToro securities trading is offered by eToro USA Securities, Inc. (\u201cthe BD\u201d), member of FINRA and SIPC. Cryptocurrency is offered by eToro USA LLC (\u201cthe MSB\u201d) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk, and content is provided for educational purposes only, does not imply a recommendation, and is not a guarantee of future performance. https:\/\/www.wallstreetzen.com is not an affiliate and may be compensated if you access certain products or services offered by the MSB and\/or the BD.<\/p>\r\n<\/div><\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"h.qb15l3580o02\"><strong>Final Word: Different Types of Options<\/strong><\/h2>\n\n\n\n<p>Options are versatile instruments allowing traders to implement unique and profitable strategies that can otherwise be difficult or impractical to execute. <\/p>\n\n\n\n<p>Whether looking to express an outsized bet on a particular stock, temporarily hedge a position, or collect a recurring income, options offer an effective method to express trade decisions efficiently. <\/p>\n\n\n\n<p>While there are only two main types of options, there are virtually no limits to the complexity of trades that can be implemented.<\/p>\n\n\n\n<p>Not only can each option contract (call and put) be bought or sold, numerous options can be used to construct a single unique and profitable strategy. &nbsp;<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n\t\t<div class=\"wp-faq-schema-wrap\">\n\t\t\t\t\t\t\t<h2>FAQs:<\/h2>\n\t\t\t\t\t\t<div class=\"wp-faq-schema-items\">\n\t\t\t\t\t\t\t\t\t<h3>What are the 4 types of options explained?<\/h3>\n\t\t\t\t\t<div class=\"\">\n\t\t\t\t\t\t<p>There are 4 main types of options positions: 1) Buying a call option (long call), 2) Selling a call option (short call), 3) Buying a put option (long put), and 4) Selling a put option (short put).<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t<h3>What are the three types of options?<\/h3>\n\t\t\t\t\t<div class=\"\">\n\t\t\t\t\t\t<p>While there are only two primary types of options contracts \u2014 calls and puts \u2014 there are countless trading strategies, like covered calls, protective puts, and long straddles, just to name a few.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t<h3>What are the 4 levels of options trading?<\/h3>\n\t\t\t\t\t<div class=\"\">\n\t\t\t\t\t\t<p>There are typically 4 levels of options trading offered by brokerages, with risk levels increasing at each stage. The first level involves permission to buy and sell options as long as you maintain a corresponding position in the underlying security; the second involves permission to buy and sell options without a corresponding position; the third involves permission to implement more complex option strategies; the fourth grants permission to implement riskier trades. <\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t<h3>What are the 2 types of option contracts?<\/h3>\n\t\t\t\t\t<div class=\"\">\n\t\t\t\t\t\t<p>The main 2 types of option contracts are call options and put options. Call options give the buyer the right, but not the obligation, to buy the underlying security, while put options give the buyer the right, but not the obligation, to sell the underlying security. <\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\n","protected":false},"excerpt":{"rendered":"<p>The idea of earning a living as an options trader is appealing. But you\u2019ve got to walk before you can run. It\u2019s essential to understand the fundamentals before you trade, like the different types of options and key options trading strategies. Let\u2019s start with the 2 key types of options: calls and puts. In this [&hellip;]<\/p>\n","protected":false},"author":17,"featured_media":9767,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false},"categories":[46],"tags":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The 2 Different Types of Options Contracts To Learn<\/title>\n<meta name=\"description\" content=\"Want to trade options? Start by learning about the two types of options: calls and puts. Learn all the basics here!\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.wallstreetzen.com\/blog\/types-of-options\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The 2 Different Types of Options Contracts To Learn\" \/>\n<meta property=\"og:description\" content=\"Want to trade options? Start by learning about the two types of options: calls and puts. Learn all the basics here!\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.wallstreetzen.com\/blog\/types-of-options\/\" \/>\n<meta property=\"og:site_name\" content=\"WallStreetZen\" \/>\n<meta property=\"article:published_time\" content=\"2023-04-26T16:25:06+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-09-02T17:44:58+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.wallstreetzen.com\/blog\/wp-content\/uploads\/2023\/04\/types-of-options-scaled.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2560\" \/>\n\t<meta property=\"og:image:height\" content=\"1707\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Jesse Oberoi\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@wallstreet_zen\" \/>\n<meta name=\"twitter:site\" content=\"@wallstreet_zen\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Jesse Oberoi\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"8 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\n\t    \"@context\": \"https:\/\/schema.org\",\n\t    \"@graph\": [\n\t        {\n\t            \"@type\": \"Article\",\n\t            \"@id\": \"https:\/\/www.wallstreetzen.com\/blog\/types-of-options\/#article\",\n\t            \"isPartOf\": {\n\t                \"@id\": \"https:\/\/www.wallstreetzen.com\/blog\/types-of-options\/\"\n\t            },\n\t            \"author\": {\n\t                \"name\": \"Jesse Oberoi\",\n\t                \"@id\": \"https:\/\/www.wallstreetzen.com\/blog\/#\/schema\/person\/d19c7c2df045acbbef5c934a2e6982bb\"\n\t            },\n\t            \"headline\": \"The 2 Different Types of Options Contracts To Learn\",\n\t            \"datePublished\": \"2023-04-26T16:25:06+00:00\",\n\t            \"dateModified\": \"2024-09-02T17:44:58+00:00\",\n\t            \"mainEntityOfPage\": {\n\t                \"@id\": \"https:\/\/www.wallstreetzen.com\/blog\/types-of-options\/\"\n\t            },\n\t            \"wordCount\": 1583,\n\t            \"publisher\": {\n\t                \"@id\": \"https:\/\/www.wallstreetzen.com\/blog\/#organization\"\n\t            },\n\t            \"articleSection\": [\n\t                \"Options\"\n\t            ],\n\t            \"inLanguage\": \"en-US\"\n\t        },\n\t        {\n\t            \"@type\": \"WebPage\",\n\t            \"@id\": \"https:\/\/www.wallstreetzen.com\/blog\/types-of-options\/\",\n\t            \"url\": \"https:\/\/www.wallstreetzen.com\/blog\/types-of-options\/\",\n\t            \"name\": \"The 2 Different Types of Options Contracts To Learn\",\n\t            \"isPartOf\": {\n\t                \"@id\": \"https:\/\/www.wallstreetzen.com\/blog\/#website\"\n\t            },\n\t            \"datePublished\": \"2023-04-26T16:25:06+00:00\",\n\t            \"dateModified\": \"2024-09-02T17:44:58+00:00\",\n\t            \"description\": \"Want to trade options? 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