A "call option" (or a “call”) is an option contract that gives the holder the
right, but not the obligation, to buy 100 shares of an underlying security
within a certain time frame, at a certain price (the “strike price”). The
concept is like leasing a particular car. You have the right to buy this car at
the end of the lease term, but instead of paying the whole premium up front, as
in buying an option, you pay a premium (in monthly installments) to the
financing company. Your lease expires at the end of the term, and just like an
option, you may exercise it, (buy the car or buy the stock), or simply let it
expire (give back the car or do nothing on the options side.) It is that simple.
A "put option" (or a “put”) is the opposite of a call. A put gives you the
right, but not the obligation, to sell 100 shares of an underlying security
within a certain time frame, at a certain price (the “strike price”). If the
security falls below the strike price you are guaranteed a sale at the
predetermined strike price.
Obviously, the less time that remains until an option expires, the lower
the premium for that option. For instance, the premium for an option that
expires in a month would be lower than the premium for an option that expires
in two months. Theoretically, if you wanted downside protection (by buying a
put) for an infinite period of time, the premium of such a put option would
equal the price of the security itself.