Jasmine Birtles
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Debunking Options Investing: Everything You Need to Know in 2025
Ruby Layram
31st Jul 2025
Options investing (or trading) is an advanced strategy that involves buying contracts that provide the right to buy or sell an underlying asset at a specific price. We get it, it sounds like you need a PhD in finance just to understand what’s going on!
But here’s the thing, while options trading can be risky, complicated, and fast-paced… it can also be strategic, protective, and even profitable for the right investor.
So whether you’ve been curious about options or just want to know what all the fuss is about, we’ve broken it down in true MoneyMagpie fashion: plain English, no-nonsense, and easy to follow.
Disclaimer: Options trading is not for the faint-hearted! It’s volatile and requires a lot of analysis.
What Are Options?
At its core, an option is a contract that gives you the right (but not the obligation) to buy or sell a stock at a certain price, on or before a certain date.
There are two types of options:
- Call options: These give you the right to buy a stock at a set price
- Put options: These give you the right to sell a stock at a set price
Think of it like placing a reservation on a stock. You’re locking in a price for the future, but you don’t have to go through with it.
How Does Options Trading Work?
Let’s say you think a company (let’s call it “TechCo”) is going to shoot up in value.
You could buy a call option that allows you to buy TechCo shares at £100 by next month. If the price goes up to £130, you’ve got a bargain on your hands, you can buy low, sell high, and pocket the difference (minus the cost of the option itself, which is called the premium).
But if the stock price doesn’t move? Or goes down? You’re not obligated to buy, all you lose is the premium you paid.
That’s why options can be a great tool for hedging risk or making big bets, but they’re not without their downsides.
Risk vs Reward
Options can be used in two major ways:
- To speculate: Making big bets on where a stock price is heading
- To hedge: Protecting your existing investments if the market moves against you
And while the profit potential can be juicy, the time limit is what makes options tricky. Every option has an expiration date. If you don’t act in time, the opportunity, and your money vanishes.
That’s why options trading is often compared to a high-speed chess match. You need to think ahead, stay calm under pressure, and know when to make your move.
What About Put Options?
Okay, so we’ve covered call options, which give you the right to buy a stock at a set price.
Now let’s talk about put options, which do the opposite. These give you the right to sell a stock at a fixed price, which can be incredibly useful if you think a stock is about to tank.
Let’s go back to our fictional company, TechCo.
You think TechCo is going to drop in value soon. So instead of shorting the stock (risky business), you buy a put option.
- This put option gives you the right to sell TechCo at £100 any time in the next month.
- You pay a premium of £5 per share for the option.
- Now let’s say you were right, TechCo falls to £70 per share.
Since your option allows you to sell at £100, you could:
- Buy TechCo shares on the open market at £70
- Immediately sell them at £100
- That’s a £30 profit, minus your £5 premium = £25 gain per share
Handy, right?
But again, if TechCo doesn’t fall, or goes up in price, your put option is worthless, and you only lose the £5 premium you paid.
When Do Investors Use Puts?
Put options are often used as a form of insurance.
Say you already own shares in TechCo and you’re nervous about a short-term drop. Buying a put option means you can lock in a selling price, just in case things go south. It’s a way to protect your downside while still staying invested.
Who Are Options Best For?
Options aren’t typically for total beginners, they’re better suited to investors who:
- Have a decent understanding of the stock market
- Want to hedge against potential losses
- Are comfortable with risk and complexity
- Want to generate income or speculate on price moves
- Are actively managing their portfolio
If you’re more of a “set-it-and-forget-it” index fund investor, this might not be your thing (and that’s perfectly fine!).
You might like: 6 lazy investing tips that could make you your millions
The Risks of Options Trading
Let’s not sugar-coat it: options are risky.
They’re more volatile than buying regular shares, and they’re also time-sensitive, if you guess wrong about the stock price or the timing, your option can expire worthless.
Other key risks include:
- Losing 100% of your investment (the premium)
- Complex tax considerations
- High potential for emotional decision-making
- Getting overconfident with leverage (small bets can lead to big losses fast)
Some strategies (like selling options rather than buying them) can even expose you to unlimited losses if you don’t know what you’re doing.
How to Start Trading Options in 2025
If you’re still keen to give it a go, here’s a beginner-friendly path:
1. Learn the Lingo
Brush up on terms like “strike price,” “expiration date,” “premium,” and “in the money” before making any moves. YouTube is full of tutorials (just avoid anyone shouting “to the moon!”).
2. Choose the Right Platform
Not all brokers offer options trading, so look for ones that do. Most will ask you to take a test before you can start.
3. Start with Paper Trading
Most platforms offer demo accounts where you can practice options trading without risking real money. It’s a great way to learn the ropes.
4. Use Simple Strategies First
Stick to buying calls or puts to begin with. Avoid complex spreads, straddles, or selling options until you really know what you’re doing.
5. Only Use What You Can Afford to Lose
This is not the place to invest your life savings. Start small. Treat it like tuition money while you learn.
Final Thoughts: Options Aren’t Evil (Just Misunderstood)
There’s a reason some of the world’s biggest investors use options, when used wisely, they can protect your portfolio, generate income, or amplify returns.
But like any high-risk strategy, they’re not for everyone. And they’re certainly not the “get-rich-quick” ticket they’re often sold as online.
The best investors in 2025 are the ones who take the time to learn, understand the risks, and build strategies that actually suit their goals and temperament.
So if you’re curious about options, do your homework, start slow, and remember: sometimes the smartest move is to not trade at all.
Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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