These fellas are contracts that give you the right (NOT the obligation), to buy or sell a security. Long story short, you purchase the option to buy (or sell) the security.
Let’s say that if you buy an option, your downside potential is the premium that you spent on the option. If you sell a call there is unlimited downside potential; if you sell a put, the downside potential is limited to the value of the stock.
So, are options risky move? If you do your homework, it is no riskier than trading stocks and bonds. In fact, if done the right way, it can be even more lucrative than trading those
But it all comes down to whether or not you did your research. If the research points to the stock increasing in price soon, then you can buy a call. If research points to a stock decreasing in price, you can buy a put. If the research points to the option staying about the same, you can sell a call or a put.
The bottom line is..You have a lot of options with options ;) hahaha
Options are just tools, and they're only as good as the people using them. If you are a well-educated investor, you could greatly enhance a portfolio's returns. However, a non-healthy use of options, can badly damage your holdings. To use options well, you've got to have a good understanding of the value of the business involved.
The good thing about options is that you can participate in a stock's price movement without actually holding the shares, at a fraction of the cost of ownership, and the leverage involved offers the potential for sizeable gains. An option's value, and your profit potential, will be impacted by how much the stock price moves, how long it takes and the stock's volatility.
Alright this was very helpful..cheers!