03 / OPTIONS
Options basics: calls, puts and contract terms
THE PHANTOM PLAYBOOK · INTRODUCTORY READING
An option gives its buyer a right to buy or sell an underlying asset at a specified price during a defined period. A call concerns buying; a put concerns selling. The seller takes on an obligation if the option is exercised and assigned.
Read the terms together.
- Underlying: the asset the contract refers to.
- Strike: the specified exercise price.
- Expiration: when the contract's rights end.
- Premium: the option's price.
Buyer and seller risks differ.
An option buyer may lose the entire premium. Some selling strategies can expose the seller to unlimited losses. The exact exposure depends on the contract and position; do not assume that a small premium means a small risk.
Practice prompt: identify the underlying, strike, expiration, and whether the position is buying or selling an option before discussing a potential outcome.
Read the full introduction
SEC Investor Bulletin: An Introduction to Options. This brief overview does not cover all contract mechanics or risks.
Continue: recognize futures exposure