There are two types of option contracts: calls and puts. A call option gives the buyer the right to buy the underlying security for a specified price and obliges the call seller to sell the underlying security at that price. A put option gives the buyer the right to sell the underlying security at a specified price and obliges the put seller to buy the underlying security at that price.
The cash price the option buyer pays to the option seller. For example, an option contract that trades for a premium of $1 is worth $100 as each contract covers 100 shares.
The strike price is the pre-determined price at which the option contract becomes exercisable:
For calls, the underlying stock price exceeds the strike price.
For puts, the underlying stock price falls below the strike price.
Options carry an expiration date which specify the last day the option contract exists. The American options allow buyers to exercise the rights at any time before and including the day of expiration. Any contracts owned that are at least $0.01 in the money at expiration will be automatically exercised. Those at or out of the money at expiration will expire.
The breakeven point is the point at which the investor neither makes nor loses money.
For calls, the breakeven is found by adding the strike price and the premium.
For puts, the breakeven is found by the strike price minus the premium.
Generally, options trade between 9:30 am-4:00 pm ET every trading day until the option is set to be expire. However, a limited number of option contracts will trade until 4:15 pm.