In the world of securities you do not need to own a stock to profit from its price movement.  Paying only a small fraction of the price of the stock itself, an investor can purchase an option that she can then trade.  Trading is done on the Chicago Board of Options Exchange (CBOE).

 

Options come in two flavors: puts and calls.  A put gives its owner the right but not the obligation to sell 100 shares of stock to the writer of the option at a set price.  A call gives the owner the right but not the obligation to buy 100 shares of stock.

 

These options decrease in value over time and eventually become worthless.  This inclines many investors to want to write options instead.  Writing covered calls is a popular way to generate additional income on a steady basis.