Options (Calls and Puts)

Financial contracts giving the right to buy (call) or sell (put) an asset at a specific price.

What Are Options?

Options are financial derivatives that give the buyer the right — but not the obligation — to buy or sell an underlying asset at a specified price (the "strike price") before or on a specific date (the "expiration date"). There are two types:

• Call option: Gives the right to BUY the stock at the strike price. You buy calls when you're bullish.
• Put option: Gives the right to SELL the stock at the strike price. You buy puts when you're bearish or want protection.

Options and Earnings

Options are heavily used during earnings season because they allow traders to bet on or hedge against earnings outcomes with limited risk. An options buyer can never lose more than the premium paid — unlike owning the stock, where losses can theoretically be unlimited for short sellers.

Key Options Concepts

• Premium: The price paid for the option contract. This is the maximum the buyer can lose.
• Strike Price: The price at which the option can be exercised.
• Expiration Date: The date when the option expires. Options lose value as expiration approaches (time decay).
• In the Money (ITM): A call is ITM when the stock price is above the strike. A put is ITM when the stock is below the strike.
• Out of the Money (OTM): The opposite — the option has no intrinsic value but may have time value.

Earnings Straddles

A popular earnings strategy is the straddle — buying both a call and a put at the same strike price. This bets on a big move in either direction. If the stock moves more than the combined cost of both options, the trade profits. On EarningsShot, your predictions can inform whether a stock is likely to have a big enough reaction to make a straddle profitable.