A call option gains value as the underlying price rises above the strike price; a put gains as it falls below. The buyer pays a premium and can lose no more than that premium. The seller receives the premium and takes on the obligation.
Option prices depend on the underlying price, the strike, time to expiry, interest rates and implied volatility: how much the market expects the price to move.
Why it matters
Options let investors shape risk: a call spread can express a 20–60 day directional view for a fraction of the cost of the shares, with the maximum loss known in advance. Implied volatility from options is also a market-wide gauge of fear, which is what the VIX measures.
General information, not advice.