OPTIONS FIELD GUIDE · 01
Options Basics
Start with the contract: who has a right, who has an obligation, what can happen before expiration, and what determines the premium.
gives its buyer the right to buy the underlying at the strike.
gives its buyer the right to sell the underlying at the strike.
accepts the corresponding obligation and receives premium.
Every option has four coordinates
An option is defined by its underlying symbol, expiration date, strike price, and right—call or put. Standard U.S. equity option contracts usually represent 100 shares, though corporate actions can adjust the deliverable.
Rights and obligations
The buyer controls exercise. A short option can be assigned when a holder exercises. American-style equity options can generally be exercised before expiration; product specifications matter.
ITM, ATM, and OTM
Call strike below spot, or put strike above spot.
The listed strike closest to the current underlying price.
Call strike above spot, or put strike below spot.
Premium = intrinsic value + extrinsic value
Intrinsic value is the amount an option is in the money. Everything else is extrinsic value, reflecting time, implied volatility, rates, dividends, and market supply and demand. A stale last trade can be misleading; current bid and ask quotes provide better mark context.
max(spot − strike, 0)max(strike − spot, 0)Build the payoff before taking the risk.
Use the calculator to combine stock and option legs, inspect breakevens, and see how the payoff changes across price and time.