If you've never traded an option, start here. Everything on this site — every strategy, every trade idea, every management rule — is built from the few simple pieces in this guide. Ten minutes now will make every other page make sense.
The deal in one paragraph
An option is a contract between two people. One person buys the option and gets a right. The other person sells the option, collects cash up front called the premium, and takes on an obligation. That is the whole game: the buyer pays for a right they may or may not use; the seller gets paid for a promise they may or may not have to keep.
Calls: the right to buy
A call gives its buyer the right to buy 100 shares of a stock at a fixed price — the strike price — any time before a fixed date — the expiration.
Say a stock trades at $100. You buy a call with a $105 strike expiring in 30 days, and you pay $2.00 of premium — $200 total, because one contract covers 100 shares. If the stock climbs to $115, your right to buy at $105 is worth real money: you can buy at $105 what the market sells for $115. If the stock sits at $100 or falls, you simply don't use the right. It expires, and the most you can lose is the $200 you paid.
Call buyers are betting the stock goes up.
Puts: the right to sell
A put is the mirror image: it gives its buyer the right to sell 100 shares at the strike price before expiration.
Same stock at $100. You buy a put with a $95 strike for $2.00 ($200). If the stock falls to $85, your right to sell at $95 is valuable — you can sell at $95 what the market buys for $85. If the stock stays up, the right expires unused, and again your worst case is the $200 premium.
Put buyers are betting the stock goes down — or buying insurance against a fall.
Example
Think of a put the way you'd think of car insurance. You pay a premium every six months. Most of the time nothing happens and the money is gone — the insurer keeps it. But if you crash, the policy pays out far more than you paid in. Buying a put is buying the policy. Selling a put is being the insurance company — which is this site's business on most strategies (LEAPS excepted, as noted below) — collecting premiums from everyone, paying out only when disaster strikes. This site is in the insurance-company business.
The four words that define every option
Every option contract on earth is described by four things:
- Underlying — the stock (or ETF, index, or future) the option is written on.
- Strike — the fixed price the right applies to.
- Expiration — the date the right dies.
- Premium — the price of the contract, quoted per share, paid × 100 shares.
So "the $95 put on XYZ expiring in 45 days, trading at $2.00" is a complete description. $2.00 × 100 shares = $200 moves from buyer to seller the moment the trade happens.
The buyer gets a right; the seller takes an obligation
This asymmetry is the most important idea in options, so say it twice: the buyer can walk away; the seller cannot.
The buyer's worst day is losing the premium — annoying, but bounded and known in advance. The seller's worst day is bigger: if you sold that $95 put and the stock falls to $60, you are obligated to buy 100 shares at $95 — $9,500 for stock worth $6,000. That's why sellers get paid up front. The premium is compensation for taking on the obligation.
Roughly a third of options expire worthless — the buyer walks away and the seller keeps the full premium — and most of the rest are closed before expiry. Either way the seller's edge doesn't need expiration day: every day the option loses time value, the seller can buy it back for less than they sold it for. That steady, harvestable decay is why most of our strategies sell options instead of buying them. (The exception is our LEAPS strategy, which buys long-dated calls, and our calendar and diagonal trades, which pay a debit up front — buying has its place when the trade is structured for it.) The edge is real, but it isn't constant — and the seller's bad days are larger than the buyer's. That's the honest tradeoff, and the risk guides in this hub exist to make sure you respect it.
Why this site is on the seller's side
Most strategies we run — selling puts, covered calls, spreads, futures strangles — are some version of the same business: collect the premium up front, then manage the obligation with rules decided in advance. The buyer hopes; the seller gets paid and manages. (LEAPS turn it around — buying time instead of selling it — which is why they're the growth half of the program, not the income half.)
If that sounds appealing, the next guides build the foundation in order: what makes one option cost more than another, how time passing pays sellers, and how to read the chain of prices where all of this actually trades.
The short version
- An option is a contract: the buyer gets a right, the seller takes an obligation and collects the premium.
- A call is the right to buy at the strike. A put is the right to sell at the strike.
- One contract = 100 shares. Premium is quoted per share, paid × 100.
- Every option has an underlying, a strike, an expiration, and a premium.
- Buyers can walk away (max loss = premium). Sellers must perform — which is why they get paid.
- This site mostly sells. The premium is the paycheck; the obligation is the risk; the rules manage the risk. (LEAPS buy — that's the growth half.)
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