I just learned about options about six months ago so this will be a very simple example of a "call" option I bought, why i bought it and what my plan is. I'm in no way saying this is a correct strategy or the way to do things but I think this will help you understand one of the most simple forms of options. Buying calls.

Ok - So back in December I bought some Costco call options. You buy a call option if you think the stock price is going to go up. There are different time periods (expiration dates) you can choose from. The longer till expiration the more the contract costs.

I wanted some time for the market to realize how great Costco is (just my thinking here) so I bought 10 contracts at $165 that expire in January 2016. Costco was trading at about $140 in December I believe and had a very good 2014.

I went to the options page on yahoo and looked to see what people were generally bidding/selling contracts for on the January 2016 expiration date. You can see here what they are right now: http://finance.yahoo.com/q/op?s=COST&date=1452816000

I bought the $165 strike call for January 2016 at around $1.90 a contract. Each contract is for 100 shares. So it's not $1.90 to buy one contract it's $190 + commission from your broker. So I bought 10. Now I have 10 contracts of Costco that I bought for $1900 that will expire in January of 2016. But, if you look at the $165 Jan 2016 contracts now you'll see people are bidding $3.40 and someone selling is asking $3.65. I could theoretically sell my 10 contracts now for somewhere around the middle of the bid/ask and I would have essentially doubled my money at this time. You "sell to close" when you're ready to sell and put in a limit price and hopefully you find a buyer willing to pay what you're asking. If not you may have to lower the price until you find someone.

So I could sell now as mentioned. Someone will buy them for $3.50 at least. I can hang on to them if I think Costco stock price is going to continue to climb. Or I could wait until expiration and the person that sold me the $165 contracts has to sell them to my at that price. I think most people sell to close before expiration.

Now, this was an example of a good call buy (so far at least). What if costco's stock price took a hit in the past few months and was at $90 now? It would be much less likely that costco will get to $165 by expiration so these contracts would be worth way less. Probably about .10 each. So now the $1900 I invested would be worth about $100. And when January 2016 rolls around they are worth nothing. The most I could lose is the $1900 but the most I could profit is essentially infinity.

Say costco went on some crazy tear the past few months and is now $300 a share. My $165 Jan 2016 contracts that I bought in December would now be worth maybe $50 each. So the $1900 I paid would now be $50,000.

I bought Telsa stock in December 2012 for about $35 a share. I bought 200 shares. Tesla's high in these two years was $290. Nobody saw that coming. I like to imagine if I had bought the two year call option instead of buying the stock. I'm still up 600% on the stock but the calls would be up %60,000 (very rough estimate). I'd be Donald Duck swimming in money and whoever sold me the options (if I chose to exercise) would probably be jumping out of a window.

I am in NO WAY advocating or giving advice. Just trying to give you one real world example in the most simple form (like you asked). I was going through the same thing six months ago and was super confused. I'm still pretty confused and there are many more strategies and types of options trading that I don't understand.

Options trading can be risky and a lot of people buy them looking for a home run. It could happen but you could also have a lot of worthless, expiring contracts.

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