Calls, puts, strike, premium and expiry — the vocabulary of options, explained from scratch with a worked example of each.
An option is a contract that gives you the right, but not the obligation, to buy or sell a stock at a fixed price before a set date. That's the whole idea; the vocabulary around it — calls, puts, strike, premium, expiry — just names the pieces of that one sentence.
A call is the right to buy at a fixed price, which pays off if the price rises above it. A put is the right to sell at a fixed price, which pays off if the price falls below it. The strike price is that fixed price named in the contract. The premium is what you pay upfront to hold the option — it's a real cost the moment you buy, whatever happens afterward. Expiry is the date the option stops existing; after that, it's worth exactly what it's worth at that moment, or nothing.
Say a stock trades at $100, and you buy a call with a $105 strike for a $3 premium. If the stock is at $115 at expiry, the option is worth its intrinsic value — the amount it's in the money: $115 − $105 = $10 per share. You paid $3, so your profit is $7 per share. If instead the stock is at $102 at expiry — below the $105 strike — the call is worthless, and your loss is the full $3 premium, no more. That's the shape of every long option: capped loss (the premium), and a gain that grows with how far the price moves past the strike.
Same numbers, reversed. A put with a $95 strike, bought for a $3 premium, on a stock at $100. If the stock falls to $85 by expiry, the put is worth $95 − $85 = $10, for a $7 profit after the premium. If the stock is at $98 at expiry — above the $95 strike — the put expires worthless, and the loss is the $3 premium paid. A put is, in effect, a bet on a falling price with a fixed, known maximum loss, unlike a short sale's theoretically unlimited one.
An option only pays off if the price moves far enough, in the right direction, before expiry — not just in the right direction eventually. A stock that ends up higher a year later can still make a one-month call expire worthless if the rise happened later than the contract allowed for. That timing requirement, not just direction, is why a large share of options expire with no value at all: being right about direction isn't enough on its own.
Fantasy Finance lets you buy calls and puts — not sell or write them — and prices them with the Black-Scholes model, using live prices, a risk-free rate, and historical volatility, the same inputs real options pricing uses. At expiry, they settle automatically in cash at intrinsic value: a call pays max(0, price − strike), a put pays max(0, strike − price), exactly as in the worked examples above. Because you can only buy options, never write them, the premium you pay is always your maximum possible loss — there's no version of an options trade in Fantasy Finance that can lose more than what you paid for it.
A call is the right to buy at a fixed price and profits when the price rises above the strike. A put is the right to sell at a fixed price and profits when the price falls below the strike.
Not when buying options, which is the only way to trade them in Fantasy Finance. Selling or writing options can expose you to much larger losses in real markets, but that isn't available here — every option position's maximum loss is the premium paid.
An option lets you express the same directional view with a fixed, known maximum loss and typically far less capital committed upfront than buying the stock outright — the trade-off is that you can lose the entire premium if the price doesn't move enough before expiry.
Mainly the current price relative to the strike, how much time remains until expiry, and the stock's volatility — the Black-Scholes model combines these, along with a risk-free interest rate, into the price you pay.
Educational content, not financial advice. Fantasy Finance is a game played with virtual capital — nothing here is a recommendation to trade with real money.