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Options trading offers retail investors flexible ways to speculate on market movements or hedge existing portfolio positions. But, like all financial markets, it requires careful navigation and can be risky. This guide explains the core mechanics of options trading, the key risks, and how to manage your exposure.
An option is a derivative contract — a financial agreement where value is "derived" from an underlying ***** et, such as a stock, index, or commodity. It grants the right, but not the obligation, to buy or sell that ***** et at a set price (called the strike price) within a specified time frame.
Every options trade involves two entities: a buyer and a seller. The buyer pays for the contract and gains the right to buy or sell the ***** et. They have no obligation to act if the trade moves against them. The seller sells the contract, taking on an obligation to buy or sell the ***** et if the buyer chooses to exercise that right.
There are two primary types of options, calls and puts, and they work like this:

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