Basics
The Basics
The Basics covers what a newcomer needs to understand options mechanically, before any question of trading them comes up. What an option contract actually gives you (a right, not an obligation, on 100 shares), how calls and puts pay off at expiry with real arithmetic, what the premium is made of, how strikes and expiration dates work, what in the money means, and what happens when an option is exercised or assigned. Read in order, the articles build a working mental model of the contract. Most people who click buy on an option in a broker app skipped this part.
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What Is an Option? The Right, Not the Obligation, Explained in Plain English
An option is a contract giving the buyer the right, but not the obligation, to buy or sell 100 shares at a set price by a set date. How buyers, writers, and the premium fit together.
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Call Options Explained: Payoffs, Breakevens, and Buying vs Selling Calls
A call option is the right to buy 100 shares at a fixed strike price before expiration. Worked payoff tables for buying and writing calls, with breakevens and maximum gains and losses.
Read the explainer →Put Options Explained: Payoffs, Puts as Insurance, and Buying vs Selling Puts
A put option is the right to sell 100 shares at a fixed strike price before expiration. Worked payoffs for buying puts, using puts as insurance, and writing puts, with breakevens and max losses.
Read the explainer →How Option Premiums Work: Intrinsic Value, Time Value, and What Moves the Price
An option's premium is intrinsic value plus extrinsic (time) value. How each part is calculated, what moves the price (stock, time, volatility, rates, dividends), and worked examples.
Read the explainer →Strike Prices and Expiration Dates: Strike Grids, Weeklys, Monthlies, and LEAPS
How exchanges choose which strikes and expiration dates to list, the third-Friday convention, weekly and daily expirations, LEAPS, and the Canadian rules on the Montréal Exchange.
Read the explainer →In the Money vs Out of the Money: Option Moneyness for Calls and Puts
What in the money, at the money, and out of the money mean for calls and puts, how moneyness affects price and risk, and worked examples comparing ITM and OTM options at expiration.
Read the explainer →How Exercise and Assignment Work: OCC, Automatic Exercise, Early Exercise, and Dividends
What happens when an option is exercised: how OCC assigns it to a writer, the $0.01 automatic exercise rule, exercise cut-off times, early exercise, and why dividends trigger early assignment.
Read the explainer →American vs European Options: Exercise Style, SPX vs SPY, and Cash vs Physical Settlement
American options can be exercised any day before expiration; European options only at expiration. How that plays out for stock options, SPX vs SPY, AM vs PM settlement, and cash vs physical delivery.
Read the explainer →How to Read an Options Chain: Bid, Ask, Volume, Open Interest, and IV
A column-by-column guide to an options chain: strikes, bid and ask, last price, volume, open interest, implied volatility, and delta, with a worked hypothetical chain and the real cost of the spread.
Read the explainer →How Options Markets Work: Exchanges, the OCC, Market Makers, and Contract Adjustments
How listed options are traded and cleared: exchanges, OCC as guarantor, market makers, the Montréal Exchange and CDCC in Canada, and how splits and special dividends adjust contracts.
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