Put: I pay someone for the right to sell something to them, at an agreed price, at an agreed time in the future, if I want to. The agreed price and time might be very straightforward ($100 on the 1st December) or very complicated (twice the average oil price over the next two weeks, on any full moon in the year 2023). But if the market price of the thing at the agreed time turns out to be less than the specified price, I effectively make a big profit as I can sell the thing for more than it is worth. If the market price turns out to be higher than the threshold, then the option is worthless and I have wasted all the money I spent on it.

Call: exactly the same, but the agreement is that I can buy something off them at an agreed price and time. So I'm hoping the market price will be higher than the agreed price.

They can be a way of placing riskier bets on market prices. If I think, say, Apple shares are going to go up, instead of just buying Apple shares I can buy call options on Apple shares, which will make me a bigger return on my initial investment if the share price does go up, at the risk of losing all of my investment if the price goes down. Alternatively, options can be combined with other investments to modify your risk or place more complicated bets. For example, I can buy some shares while also buying put options on those shares, which effectively acts as insurance in case the share price plummets (since I can still sell them at the agreed price if I want).

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Yeah Id love a real explain like I'm five maybe even two. I feel so many examples leave the basics out. I'd also like to know why these two options are explored by wallstreetbets a lot. Do these options allow people to possibly get rich super quick?

When you buy a call option, you give somebody money for them to have to deliver something for a price in the future, but where you don't have to take it if you change your mind. A put option is the same except you give someone money so they will be obliged to receive something for a price in the future. They say an option that you buy is "the right but not the obligation to buy or sell something at a fixed date in the future for a fixed price." An option that you sell is the obligation to fulfill that contract.

Why would someone do this? Well, say you will receive 2000 tons of gold next month because you found el dorado or something, but you don't have anywhere to put it. You can pay people today to receive gold at the current price next month, regardless of what the price is next month. If the price of gold goes up, you can just sell the gold you received for the market price, but if the price goes down, you can sell it for last month's price.

It's an insurance contract that dates back to Babylon. Farmers could negotiate a delivery price in summer for their harvest in the fall. That is, pay a little bit of gold in the summer to guarantee they could receive much more gold in the fall. Babylonian traders usually could then export the received goods at a higher price, so they were just looking for income on both ends of the trade.

An 'option' is the right to buy or sell a given commodity at a fixed price at a fixed future date. There are two types of options, Call Options and Put Options.

Buying a Call Option involves paying a premium for the right (NOT the obligation) to buy a commodity at a fixed price at a fixed future date. People who buy call options believe the price of this commodity will strongly increase in the future.

For example, suppose Company X has shares/stocks worth $50. You believe these will trend upwards strongly, and will be worth $60 in 6 months' time. You then go out and buy a call option, paying a premium for the right to buy 100 Company X shares at $50 at a date 6 months in the future.

If you are correct and the shares do increase to $60 over the next 6 months, you have two choices:

a) Exercise your right to buy the 100 shares at $50, and then sell them at the market value of $60 each. Congratulations, you've made a profit of $1000 minus the cost of buying the call option.

b) As the share price trends upwards, the value of the call option increases. Instead of buying the shares, you could sell your call option to someone else for a much higher price that what you paid for it, and make your profit that way.

If you are incorrect and the shares do not increase, your call option is essentially worthless, and you make a loss corresponding to the cost of the call option.

Buying a Put Option involves paying a premium for the right (NOT the obligation) to SELL a commodity at a fixed price at a fixed future date. This is the opposite of a Call Option, and would be used when you expect the price of something to trend downwards strongly.

In the example above, Company X's shares are at $50 but you expect them to fall to $40. So you'd buy a Put Option instead of a Call Option. If the shares did trend down, you'd buy at the lower market value ($40) and sell at $50, or on-sell the Put Option, to make your profit.

• A put option is basically an insurance policy against the price of a particular stock going down (for people who want to sell that stock in the future).
• A call option is basically an insurance policy against the price of a particular stock going up (for people who want to buy that stock in the future).

In the US, the options (i.e., the insurance policies) have standardized terms, and can be bought, sold, and used through most online stock trading services.

Options are more like gambling than investing, and it is also much easier to lose large amounts of money. There are some legitimate uses for options, but they don't apply to 95% of the people reading this. Unless you understand very well how options work, you should treat it as similar to buying a lottery ticket or going to the casino and betting on dice:

• Spend only money you can afford to lose
• Realize you're probably doing business with someone who's mathematically proven that you'll lose money on average
• Realize that it's very easy to make very expensive mistakes
• Don't be surprised if you lose it all
• Consider it entertainment purposes only, not a strategy for reliably earning money