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Options, without the folklore
A listed option is a contract with a strike, an expiry and a multiplier. Buyers pay premium for a right. Sellers are paid to take an obligation. If you remember only that split, you will avoid most of the confused product pages on the internet.
Long options first
A long call benefits if the underlying rises above the strike by more than the premium, before expiry, after costs. A long put benefits if it falls by more than the premium. In both cases the most you can lose on that single long option is the premium. Time passing can hurt you even when the price moves your way, because the premium contained time value.
Why selling is a different product
The seller’s gain is capped near the premium and the loss may not be. Covered calls still give up upside and can be assigned. Naked shorts can be ruinous. Brokers put these behind approval levels for a reason. This site’s calculator refuses to dress up short options as a defined-loss example.
American exercise and assignment
Many US equity options can be exercised before expiry. If you are short, assignment can arrive early around dividends. Index options often differ. The specification, not a general article, is the authority for the series you trade.
Sources and review
Written by: WiT Markets Editorial. Writes and structures WiT Markets pages. Separates a sourced fact from a cell that is Not confirmed.
Review: Editorially reviewed. This is not a qualified specialist review and it is not a legal sign-off.
Last reviewed: . Next review due . The date is an editorial pass. It is not a live check of every third-party fee.
Regulatory and official sources
- U.S. Securities and Exchange Commission — checked 13 October 2026
- Investor.gov — checked 13 October 2026
Other sources
- Options Clearing Corporation — checked 13 October 2026
Methodology. Editorial policy. Corrections. Report an error.