An option is a contract giving the buyer the right — not the obligation — to buy (call) or sell (put) 100 shares of an underlying at a fixed strike price

K

before or at expiration. The buyer pays a premium; the seller ("writer") collects it and takes on the obligation.

Calls vs. puts

Call — the right to buy at $K$ . Gains value as the underlying rises.
Put — the right to sell at $K$ . Gains value as the underlying falls.

Moneyness

For an underlying trading at price $S$ :

	Call	Put
In the money (ITM)	$S > K$	$S < K$
At the money (ATM)	$S \approx K$	$S \approx K$
Out of the money (OTM)	$S < K$	$S > K$

Intrinsic vs. extrinsic value

An option's premium splits into two parts:

\text{Premium} = \text{Intrinsic} + \text{Extrinsic}

Intrinsic value is what you'd capture by exercising right now ( $\max(S-K,0)$ for a call). Everything else is extrinsic (time + volatility) value, which decays to zero by expiration.

Breakeven

The breakeven is the stock price at expiration where a trade exactly covers what it cost — you neither make nor lose money. Move past it (up or down, depending on the trade) and you're in profit. On every payoff chart in these modules, it's the point where the profit/loss line crosses $0.

The four Greeks

Delta ( $\Delta$ ) — change in option price per $1 move in the underlying. Also a rough probability of finishing ITM.
Gamma ( $\Gamma$ ) — how fast delta changes; highest near the money and near expiry.
Theta ( $\Theta$ ) — daily time decay. Negative for buyers, positive for sellers.
Vega — sensitivity to a 1-point change in implied volatility (IV).

Beginner takeaway: buying options is long volatility and fights theta; selling options is short volatility and collects theta. Every strategy in these modules is just a way of combining these to express a specific view.

Two hazards for buyers (you'll see these named again and again): an option you buy bleeds a little value every day nothing happens — that's theta decay. And if you buy right before a known event like earnings, the priced-in volatility can collapse the moment it's over — an "IV crush" — losing you money even when you called the direction right. Sellers face the mirror image, collecting that decay.

Options BasicsOptions BasicsOptions Basics

Options Basics