Let's give an example to make it clear what happens with the money. The options in this case expire in three months. If the stock is above the strike price, you make money if the difference exceeds your premium. You also have the option to trade the options before it expires, if you're happy with the profit. Let the options expire without exercising them.
Investors also buy options when they think a stock or other security is going to decline in value.
An option to sell a stock is called a put . When you buy put options, you buy the right the sell the underlying investment at a set strike price within a given time frame. The way buying put options works is similar to buying calls, except you hope for the underlying investment to go down. If so, you trade for a profit. If not, you swallow the premium.