What an option actually is
An option is a contract. It gives you the right — but not the obligation — to buy or sell 100 shares of a stock at a fixed price, on or before a set date.
Two numbers define it: the strike (the fixed price) and the expiry (the deadline). You pay a price for that right, called the premium. That premium is the most a buyer can lose.
Calls and puts
A call is the right to buy at the strike. It gains value as the stock rises above that strike — so you buy calls when you expect a move up.
A put is the right to sell at the strike. It gains value as the stock falls below the strike — so you buy puts when you expect a move down, or to protect shares you own.
Buyer or seller
Buy an option (go long) and your risk is capped at the premium you paid; your reward can be large. Most people start here because the downside is defined.
Sell an option (go short) and you collect the premium up front, but you take on the obligation — and the risk is larger, even unlimited on a naked call, unless it's covered by shares or paired with another option.
What you're paying for
Premium = intrinsic value + time value. Intrinsic value is how far in-the-money the option already is. Time value is the extra you pay for the chance the move happens before expiry.
Time value erodes every day, faster as expiry nears — that's time decay (theta). It's the headwind a buyer fights and the tailwind a seller collects.
The Greeks, in one breath
Four numbers describe how an option's price reacts. Delta — how much it moves per $1 in the stock. Gamma — how fast delta itself changes. Theta — daily time decay. Vega — sensitivity to implied volatility, the market's expected move.
You don't need to compute them, but knowing which way each points tells you what a position needs to win: a direction, a fast move, time, or a change in volatility.
Combining legs: spreads and beyond
Add a second leg and you reshape the payoff. A vertical spread caps both your risk and your reward, for a cheaper, defined-risk bet. An iron condor profits if the stock stays in a range; a straddle profits if it makes a big move either way.
Every structure is just the four basic positions — long and short calls and puts — combined to fit a view.
Managing the trade
Plan the exit before you enter: decide where you cut the loss (your stop) and where you take the profit (your target). The exit decides what you actually keep.
On near-dated options, one common approach is to stop around minus fifty percent of premium and take profit around plus fifty to one hundred percent. On longer-dated trades, traders often give the position more room and scale out. These are general heuristics, not rules — and not advice.
Where hedg3 fits
hedg3 screens 22 options strategies every day, ranked by return on risk, probability of profit, liquidity and implied volatility, and shows where the largest options flow is landing — so you can find ideas to research without reading every row of the chain.
It's a screener and a publisher of general market commentary, not a broker or an adviser. Everything here is educational; what you do with it is your decision.