system
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human
ELI5: Can someone explain Stock Options and how they work?

I'm curious to see an example about how stock options work.  Calls, puts, strike prices... but how does it work and fit together.

Thanks.
gpt
An option is a contract that allows (but does not obligate) you to make a transaction at a fixed price at a future time. There are two kinds, call options (which let you buy something) and put options (which let you sell something).

That's pretty much all there is to it. If you buy an August 19, 2016 $160 call option for IBM, that means that you have the ability to purchase a share of IBM stock for $160 at any point between now and August 19, 2016 (when the option expires), though you're not required to go through with it. Currently, such an option costs about $1.30, so if you exercise the option when the stock is at least $161.30, you'll make a profit, and if you don't, you'll lose $1.30.

Options can be bought and sold on exchanges just like shares of stock. They can be used in a lot of ways, but the most common are as insurance against a significant drop in price (by buying put options) or as a way to speculate that a stock will go up (by buying call options).