Options are contracts that give you the RIGHT (but not the obligation) to buy or sell a stock at a specific price by a specific date. There are two types: calls and puts. A call option gives you the right to BUY a stock at a set price (the strike price). A put option gives you the right to SELL at a set price. You pay a premium upfront for this right — think of it as the price of the contract itself.

Let's say Apple is trading at $200. You think it's going up. You could buy a $210 call option expiring in 30 days for $3. This means you have the right to buy Apple at $210 anytime in the next 30 days. If Apple goes to $230, your option is worth at least $20 (the difference between $230 and $210). You paid $3, so your profit is $17 per share — that's a 567% return. If you had just bought the stock at $200 and sold at $230, your return would be 15%. Options amplify returns — but they also amplify losses. If Apple doesn't go above $210 by expiration, your option expires worthless and you lose the entire $3.

Puts work the same way but in reverse. If you think a stock is going down, you buy a put option. A $190 put on Apple gives you the right to sell Apple at $190. If Apple drops to $170, your put is worth at least $20. Puts are also used as insurance — if you own 100 shares of Apple and buy a $190 put, you're protected below $190 no matter how far the stock falls. This is called a 'protective put.'

The key variables in options pricing are: strike price (the price at which you can buy/sell), expiration date (when the contract expires), implied volatility (how much the market expects the stock to move), and the current stock price. These factors are captured by 'the Greeks' (Delta, Gamma, Theta, Vega), which you'll learn about at Level 3. For now, understand that options give you leverage and flexibility — but they come with the risk of losing your entire investment if the trade doesn't work out before expiration.