Options trading is the buying and selling of contracts that let you bet on where a stock is headed without owning the stock itself. One contract usually covers 100 shares, and the price you pay for it, called the premium, is the most you can lose when you're the buyer. That small price tag is why options attract so many first-time traders, and why so many walk away burned. This guide explains how calls and puts work, what a trade costs, what the research says about who wins, and how to learn the skill without paying for hype.
How we put this together: AllPros doesn't buy or complete the courses it covers, and we haven't placed these trades ourselves. This explainer draws on SEC, FINRA and IRS material, Options Clearing Corporation and Cboe volume data, and peer-reviewed research, all checked on November 10, 2026. If you're exploring active trading more broadly, our day trading category is where verified learner reviews of trading programs live.
What Is Options Trading in Simple Terms?
Options trading is buying or selling contracts that give you the right, but not the obligation, to buy or sell a stock at a set price before a set date. Each standard contract covers 100 shares.
The SEC's investor education team gives a clean example: an option quoted at $2.20 costs $220 per contract, paid up front and non-refundable. The set price is the strike price, the deadline is the expiration date, and that $220 is the premium.
Think of a deposit on a house. You pay a fee to lock in a purchase price for a few weeks. If the neighborhood booms, your locked price looks brilliant. If it doesn't, you forfeit the fee and walk away. An option works the same way, except the house is 100 shares and the clock runs much faster.
The idea is older than trading apps. The first US exchange for listed options opened on April 26, 1973, and on day one it handled 911 call contracts on 16 stocks. If the stock side of this is still fuzzy, our explainer on what trading is covers the basics first.
How Does Options Trading Work? A Worked Example
You pay a premium to lock in a price. If the stock moves your way by more than that premium before expiration, you profit. If not, the contract expires and the premium is gone.
Here's a hypothetical we calculated to show the mechanics. A stock trades at $50. You buy one $52 call expiring in 30 days for a $1.50 premium, so you pay $150. Your break-even is $53.50 (the strike plus the premium). Fees are ignored.
| Stock price at expiration | One $52 call (cost $150) | 100 shares (cost $5,000) |
|---|---|---|
| $48 | -$150 (-100%) | -$200 (-4%) |
| $52 | -$150 (-100%) | +$200 (+4%) |
| $53.50 | $0 (break-even) | +$350 (+7%) |
| $56 | +$250 (+167%) | +$600 (+12%) |
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Look at the $52 row. The stock rose 4% and the call still lost everything, because the stock had to clear the strike and cover the premium. In the $56 row, the call returned 167% on $150 while the shares returned 12% on $5,000. Options shrink the check you write and raise the odds of losing all of it.
Most positions never end in exercise. According to IRS Publication 550, an option ends in one of three ways: you exercise it, you sell it in a closing transaction, or it lapses.
Call vs Put: What's the Difference?
A call gives its buyer the right to buy 100 shares at the strike price, so it gains when the stock rises. A put gives its buyer the right to sell 100 shares at the strike, so it gains when the stock falls.
Every contract has two sides. The buyer holds the right. The seller, also called the writer, holds the obligation if the buyer exercises.
| Position | What you hold | You want the stock to... | Most you can lose |
|---|---|---|---|
| Buy a call | Right to buy 100 shares | Rise above strike plus premium | The premium paid |
| Buy a put | Right to sell 100 shares | Fall below strike minus premium | The premium paid |
| Sell a call | Obligation to sell 100 shares | Stay flat or fall | Can be very large |
| Sell a put | Obligation to buy 100 shares | Stay flat or rise | Strike x 100, minus premium received |
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The bottom two rows are where beginners get hurt. The SEC warns that option holders risk the entire premium, and that certain contracts can expose writers to unlimited potential losses.
A quick put example, again hypothetical: you buy a $50 put for $1.80 ($180). If the stock drops to $44, the put is worth $6 per share ($600), a $420 profit. If the stock stays at $50 or climbs, you lose the $180.
Now flip it. You sell a $45 put and collect $1.00 ($100). The stock falls to $30, so you must buy 100 shares at $45 that are worth $30. That's a $1,500 loss, minus the $100 you collected, or $1,400. If the stock went to zero, the loss would be $4,400.
What Moves an Option's Price?
Three things drive a premium: where the stock sits relative to the strike, how much time is left before expiration, and how volatile the stock is expected to be, according to the SEC's options bulletin.
Traders use shorthand for those sensitivities, known as the Greeks. Delta tracks how much the option moves when the stock moves. Theta tracks time decay, the value an option loses each day simply because expiration is closer. Vega tracks sensitivity to volatility.
Implied volatility is the market's guess at how much a stock will swing. When a big event passes and that guess collapses, premiums can fall even if the stock moved the way you wanted. Traders call this IV crush, and it catches beginners buying calls right before earnings.
Why Is Options Trading So Popular Right Now?
US options volume hit a record 15.2 billion contracts in 2025, up 24.4% from 2024, according to the Options Clearing Corporation.
| Product type | 2025 contracts | 2024 contracts | Change |
|---|---|---|---|
| Equity options | 8,269,693,680 | 6,519,467,354 | +26.8% |
| ETF options | 5,679,730,264 | 4,659,359,878 | +21.9% |
| Index options | 1,257,739,610 | 1,045,400,374 | +20.3% |
| Total options | 15,207,163,554 | 12,224,227,606 | +24.4% |
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Single days broke records too. Cboe reports that 110 million contracts traded on October 10, 2025, and that same-day-expiry (0DTE) S&P 500 options made up 59% of that product's 2025 volume. By July 2026, 0DTE reached a record 66.2% of S&P 500 options volume.
Contracts that expire the day you trade them leave almost no room to be wrong. Which brings up the question every buyer eventually asks.
Do Most Options Traders Lose Money?
Research says retail options buyers lose money on average, but we couldn't find a primary source for the popular "90% lose" figure. The two strongest studies we found point the same way.
A Journal of Finance paper by Bryzgalova, Pavlova and Sikorskaya found that retail traders prefer cheaper weekly options, with an average bid-ask spread of 12.6%, and lose money on average. The spread is the gap between what buyers pay and what sellers receive, so every round trip starts you in a hole.
The second study isn't about options, so treat it as a warning about behavior, not a statistic. Brazilian researchers followed everyone who began day trading equity-index futures from 2013 to 2015. Among those who kept at it for at least 300 days, 97% lost money and only 0.4% earned more than a bank teller. The authors also found no evidence of learning over time.
What we can say: buying short-dated, cheap contracts is the most common retail pattern in the data, and it's the pattern that loses. Our breakdown of whether day trading is worth it goes through more of the numbers.
Can You Trade Options With $100?
Yes, if a contract's premium is $1.00 or less, since one contract costs the premium times 100. You'll also need broker approval, and cheap contracts are often short-dated or far from the stock's current price.
Brokers can't just hand you options access. FINRA says firms must do due diligence on you, approve the account, and furnish the Options Disclosure Document (formally, Characteristics and Risks of Standardized Options). Schwab's options page adds that the allowed trade types depend on your approval level, and lists hedging a stock you own, earning income, and speculating as the three main uses.
Here's the part cheap-contract hunters skip. If that 12.6% average spread applied to a $100 contract, the gap between buying and selling would be roughly $12.60. That's our arithmetic from the study's average, so read it as scale, not a guarantee. A $100 contract that expires worthless is also a full loss. Fee structures differ a lot between brokers, which is why we ranked seven in our beginner trading platform comparison.
How Are Options Taxed?
In the US, profit or loss on an option you buy is a capital gain or loss, and if it expires unused, the premium becomes a capital loss, according to the same IRS publication.
If you sell the option before expiration, the gain or loss is short-term or long-term depending on how long you held it. If you write an option and it expires, the premium you received is a short-term capital gain. Index options and straddles follow other rules, so check with a tax professional before filing. This is general information, not tax advice.
How Can You Learn Options Trading Without Getting Burned?
Learn from sources that show verified learner outcomes, start with positions where your maximum loss is known, and treat any program promising steady income as unproven until independent reviews say otherwise.
If you want structure rather than scattered videos, these five programs in the AllPros catalog cover options and related trading education. We're not telling you to buy any of them. Open the verified reviews first, compare what learners report against what the sales page promises, and check the refund terms before you pay.
Three quick checks before you spend a dollar on any course:
- Does the program tell you what loss rates to expect, or only show winning screenshots?
- Are the reviews verified, and do any of them mention losing money?
- Is the refund policy written down, and can you still use it after you start?
Our guide on how to choose a day trading course walks through the full checklist.
What to Do Before Your First Trade
Pick one stock you already follow, look up its options chain, and find a contract about a month out with a premium near $1.50. Multiply that premium by 100 and ask yourself honestly whether you'd be fine watching that amount drop to zero. If yes, you understand options trading well enough to ask better questions. If no, that's your answer for now.
