If you buy a Long Call, you are buying the right to purchase the stock at a given price. and you want the price to rise so you can purchase the stock at the cheaper price. If you buy a Long Put, you are buying the right to sell the stock at a given price and you want the price to drop so you can sell at a higher price than the market. In both instances, you can only lose what you paid for this right if the underlying price goes against you. Think of this like buying insurance. If you are short a call, you are selling someone else the right to buy that stock at a given price. Conversely if you are short a put, you are selling someone the right to sell the stock at a given price. In the case of a short put, you lose if the stock price drops as someone will execrcise their right to sell at the higher price. if you are short a call, you lose if the stock goes up because someone will exercise their right to buy at a cheaper price. Think of short options as selling insurance. Short puts have the risk of the underlying going to zero while short calls have unlimited risk as the price can rise infinitely. Play around with paper trading some simple calls and puts, see how the price reacts, see how implied volatility and time decay affect your positions. I agree with the other posters to not put any real money on the line until you have the basics down cold.
Attempting to answer your first question above: "I would to like to know amongst other things is if an option (shorted) doesnt go my way can i hold out until the expiration date and just lose what i put in?" What do you mean by (shorted)? Shorting would "typically" mean Selling the option, but since you seem to imply "lose what I put in", you must have something else in mind! If you can clearly state your question, I won't have to guess at what you mean. The most logical interpretation is your question Should be "If I buy an option and it does not go my way, can merely loose my investment and allow the option to expire? <-- answer "YES" (same answer for CALL or PUT) IFF your trade is to capitalize on a move down, you may prefer to BUY a PUT. IFF your trade is to capitalize on a move up, you may prefer to BUY a CALL. Buying a Call has directional bias similar to purchasing the underlying. Buying a PUT has directional bias similar to shorting the underlying. I assumed you understood that. If not, perhaps some outside reading is prudent. I do not follow the last few sentences of your response.
OH now i see. I was trying to relate shorting and longing options as you would a stock. I was thinking that when you wanted to short an option you would click on sell instead of the buy button. But now im understanding more clearly how this works. So when i want to short an option i would go and click on put and then click on buy. And then when the stock drops to a certain level i would then click on sell.
see the thing that was confusing me was that people were saying buying a put when in my mind i thought it was selling a put like in stocks.
Do you know what the difference between a put and call option is? It seems like that may not be the case. Buying a deep in the money call is the same-ish as going long the stock. Buying a deep in the money Put is the same-ish as shorting the stock... You can also short(sell) call and put options. There has to be a free online options tutorial that can clear up this ambiguity for you. There is math involved in options. If you can't grasp it, you should stay away from options because your're going to get ripped. Also, it is my understanding that most successful options traders are spreading... not purchasing/selling naked calls/puts.
response to one statement: "So when i want to short an option i would ..." No! You should get your terminology correct, else you will have more issues. You CAN short (sell) an option, but I do not think you really want to be doing that at this point. I think you are interested (or should be interested) in placing risk defined directional trades with heavy leverage. (If you are NOT trying to leverage, other scenarios may be preferable, such as spreads). You don't want to short (sell) the option, you want to buy a PUT. <-- IFF I am understanding you correctly. BTW: Check with your broker to see what level of trading authorization you have in your account. If not Tier 2 or higher, the broker will not allow you to sell a naked option, so the point may be mute. The statement you made actually implies you are understanding the "jist" of what I tried to explain, but I am cautioning you about using the incorrect terminology, as no one will be able to decipher what you meant based on what you say, otherwise. It is NOT my intention to appear anal -- Murphy will strike at every opportunity, I'm just trying to help. You have not yet asked questions relating to strike or Expiration. There is more stuff to ponder! ;-)
yes i now understand that i should buy the put instead of shorting due to my incredible lack of understanding at this moment. I had my terminology all mixed up because i kept paralleling it to stocks. I really just want to say to everyone how appreciative i am for your lessons. Thank you!!
i dont think that i would ever want to shorting a naked option considering from what ive read, the loses are extremely greater than just buying a put option.
BTW: Option trading looks deceptively simple to the un-seasoned. All too often, when I "think" I am somewhat "experienced", I find there is so much more to understand. A friend of mine once stated "There is a lot we do not know about the unknown!" I am still learning at a faster pace than I feel comfortable with (Though I'd have it all figured out before now!) Good luck. The other comments regarding paper trading seem to be very good opportunities to learn without financial losses.