The Complete Guide to Options- Part 1

What is an Option?

An option is the right, but not the obligation, to buy or sell an asset at a fixed price before a predetermined date.

Buying a call or put conveys the right to buy or sell an underlying instrument.

The risk of this is simply the price you paid for the contract.

Selling an option whether a call or put obliges you to buy with sold puts or deliver with sold calls to the option buyer if the option is exercised.

Selling options puts on much more risk as you have unlimited potential to lose money.

Let’s break this down for both Calls and Puts from a buyer and seller perspective.

Call buyer has the right, but not obligation, to buy stock from call seller.

Call seller is obliged to sell stock to call buyer if exercised.

Put buyer has the right, but not obligation, to sell stock to put seller.

Put sellers is obliged to buy stock from put buyer if exercised.

Always remember: