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Each option contract typically represents 100 shares of the underlying asset. When you buy or sell an option, you're not actually buying or selling the underlying stock immediately. Instead, you're trading a contract that gives you the right to do so. Options have a finite lifespan, with an expiration date. Once the expiration date arrives, the option either becomes worthless (if it's not profitable to exercise) or is automatically exercised (if it's profitable), or you have the option to exercise it yourself. The price you pay for an option is called the premium, and it's influenced by several factors, including the stock price, the strike price, the time until expiration, the volatility of the stock, and prevailing interest rates. The premium is the maximum amount you can lose when buying an option. Option contracts are traded on exchanges, and the prices are readily available, just like stocks. When you're trading options, you have the option to close your position before the expiration date by selling the option in the market if you decide you don't want to hold it until expiration. These options contracts allow you to speculate on the price movement of an asset, to hedge your existing holdings, or to generate income.
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