# How Options Work

How options work. In order to understand how do options work, here are some key terms you must first know:

## Call Options

Call options give the buyer the right but not the obligation to purchase the underlying asset. Buying a call option is a bullish strategy: a call option increases in value when the underlying asset rises in price, and loses value when the underlying asset falls in price.

## Call option Moneyness

Depending on the market price of the underlying asset, here are some technical terms you should understand:

- In-the-Money – The market price of the underlying asset is more than the strike price.
- At-the-Money – The market price of the underlying asset is the same as the strike price
- Out-of-the-Money – The market price of the underlying asset is less than the strike price

## Put Options

Put options give the buyer the right but not the obligation to sell the underlying asset. Buying a put option is a bearish strategy: a put option increases in value when the underlying asset falls in price, and loses value when the underlying asset rises in price.

## Put option Moneyness

As with call options, depending on the market price of the underlying asset, here are technical terms related to put options:

- In-the-money – The market price of the underlying asset is less than the strike price
- At-the-money – The market price of the underlying asset is the same as the strike price
- Out-of-the-money – The market price of the underlying asset is more than the strike price

## Long-term equity anticipation securities (LEAPS)

What are LEAPS? Long-term equity anticipation securities are long-term options that exhibit the same characteristics as normal options, with the exception that LEAPS have a much longer time to expiry. Some long-term equity anticipation securities can have expiration terms of more than two and a half years.

## Option Chains

What are option chains? Widely available for free on the internet, They are tools which offer crucial details for a number of options: the current market prices, liquidity, available strike prices, time to expiry.

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