Options Beginner's Guide -- Basic Logic and Rules

I've made money in bull markets and survived bear markets, and I've seen too many young people thinking they can 'turn things around with options,' only to lose everything. I've also made 10x, 20x, or even more profits with options, but I've also suffered losses.

I believe many beginners or those who haven't tried options yet want to ask: 'I saw some option rise 300% in a day, can I buy some to take a gamble?' After hearing this, I just want to say four words: Slow down. You only see the high returns of options, but you must understand that high returns come with high risks. Before diving in, learn what options are, their rules, and basic logic. Prepare before you act! As suggested by @彩子

Today, I'll explain options in the simplest and most down-to-earth way, helping everyone avoid pitfalls.

1. What exactly are options?
This has been covered in previous articles, but many might still not understand. Let me explain in plain terms:

With stocks, you buy and wait for them to rise;

With options, you spend a small amount to buy the 'right to bet on direction' without buying the whole stock;

If it rises, you can make a fortune; if not, you might lose everything.

Options = Directional bet + Time gamble + Volatility wager.

2. Call options vs. Put options: Understand what you're betting on
Call options (Call): Bet the stock will rise. Suitable for bull markets or positive expectations.

Put options (Put): Bet the stock will fall. Suitable for bear markets or negative events.

But note: It's not as simple as buying Calls if you think it'll rise or Puts if you think it'll fall.

You need to consider three things:

The target price (strike price)

When it will reach that price (expiration date)

How the market prices this bet (volatility)

3. How to choose the strike price? Not too far, not too close
Every option has a 'strike price,' the agreed price at which you can buy/sell the stock in the future.

Strike price categories:

Example (stock price $100)
In-the-money (ITM): Already profitable. Call strike price $90
At-the-money (ATM): Close to current price. Strike price $100
Out-of-the-money (OTM): Not yet profitable. Call strike price $110

How to choose? Depends on your risk appetite:

ITM: High success rate, limited gains — Conservative players
ATM: Balanced risk and reward — Recommended for beginners
OTM: High risk, high reward — Gamblers or event-driven bets

Advice: Beginners should avoid deep OTM options. They seem cheap but may end up worthless.

4. Long-term vs. short-term options: Time decay is no joke
Options have a fatal trait: Time value decays daily. Even if the stock doesn't move, your money is bleeding.

This is called Theta (time decay), especially severe for short-term options.

Short-term (under 1 week): Cheap, exciting, fast decay — For experienced traders betting on short-term moves
Mid-term (2 weeks–1 month): Manageable risk, good flexibility — Suitable for most
Long-term (over 1 month): Expensive, stable, forgiving — For those focused on trends and wary of short-term volatility

Example:
You buy a weekly Call, and if the stock doesn't move today, the option loses 10–20% by tomorrow. Long-term options decay slower.

Advice: Unless it's for an event (earnings, major meetings), avoid very short-term options. Give the trade time to play out.

5. How to evaluate potential returns? It's not just about direction, but 'value'
To judge if an option is worth buying, consider:

Probability of the stock reaching the target (directional bet)

Whether there's enough time left (time factor)

Whether the current price is reasonable (valuation)

Do the math:

If you bet a stock will rise from $100 to $120 and buy a $120 Call with 5 days left, while the stock is at $101, the option is likely worthless.

But if you buy a $110 Call with 1 month left, you have more time to wait, and the odds of hitting the profit zone are higher.

6. Common mistakes beginners make:
1: Buying cheap OTM options just because they're cheap

They're cheap, but if the stock doesn't hit the strike price, you get nothing.

2: Ignoring time, waiting for miracles as expiration

Time isn't your friend; it's cutting into your capital.

3: Not selling when up, hoping for 'one more day, double the gains'

If an option doubles, sell; if it triples, sell faster. Don't be greedy.

4: The stock rises, but the option still loses

Could be due to dropped volatility or buying too far OTM.

7. 'Four-step option strategy'

1. Judge the trend: Use Calls in bull markets, Puts in bear markets

2. Choose the strike price: Not too far, not too close

3. Control time: Don't buy near-expiration junk

4. Set profit/loss expectations: Take profits, cut losses, discipline is key
Final words:
Options aren't a tool to get rich overnight but an amplifier for precise bets.

If you're right, they can double your gains;
If you're wrong, they can zero you out faster than you think.

If you still don't understand strike prices or time decay, don't risk real money. Practice with simulations, learn the rules, then consider betting.
If you find this helpful, feel free to follow for more on options, option strategies, advanced options, and investing. May we all reap rewards on this path.
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