OK, so what is an option? For that matter, what's a stock; I mean, what is a stock 'to us'? Because what we want to do here is make money, so who really cares what it "really" is. All we need to know is how can we make money buying and (more importantly) selling them?

As far as we are concerned, a stock is the price we pay for a tiny percentage of the company. And because the world is changing a little bit every day, so does the value of any company. For example, when vacuum tubes were invented, the value of the company RCA increased over time, along with their stock. In fact, in the 1920s RCA stock went up 936% in 5 years but they are gone today; bought and dumped by GE in 1986. The point here is that prices go up and prices go down. So we want to buy when the price is low and sell when it is high (buy and hold is a losers game and so is dollar cost averaging; we'll get to that later).

What is an option? A stock option is an agreement to buy (or sell) a stock, at a particular price, within an agreed upon time. That's all there is to it; Stock, Price, Time. So what is the point in owning an option? Well, let's say that the price of DELL is $50 on Monday, but you can't get to the bank to cash your tax return check until Friday. You want to buy 100 shares, but you only have $19 today. Wouldn't it be cool if you could pay your broker $19 today to find 'someone' to guarantee today's $50 price until you cash your check on Friday? You can do exactly that! And it is named a "call option".

So why does everyone say "Oooohhh, that's so r.i.s.k.y."? It got that reputation because stupid people who don't want to invest the $5,000 to buy it go out on Monday and buy the option for $19, and then run out and try to sell it for $20 the next few days. Why would it go to $20? Well, hey, aint' that the reason you paid your broker to guarantee the price; because you expected it to go up? Well, just maybe you were right...and DELL really IS going up. So if the price goes to $51, or $52, or higher, doesn't it make sense that the option to buy it as $50 will go up as well? Sure! In fact, at $53 it is worth at least $3, even the day that the option expires, right? We agreed to trade it at $50, so somebody is making $3 and someone is losing $3. Remember, there is a person on both ends of this deal.

So that's all there is to a call option; The underlying stock (DELL), the strike price ($50), and expiration (Friday). Of course, there is also the person who buys the call (you) and the person who writes the call, the 'someone' that your broker found for you.