Options Basics: Calls, Puts, Strikes and Expiration

Before you read: What You Can Trade: Stocks, ETFs, Futures and Options

What you will learn

• What a call and a put are, and the difference between buying and selling each one.
• What the strike price, expiration, premium and contract multiplier mean on a listed option.
• How to read one line of an option chain.

What is an option?

What is the difference between having the right to do something and having to do it?

An option is a contract that gives its buyer a right, and its seller an obligation. The buyer pays the seller a price, called the premium, for that right.

• A call gives the buyer the right to buy the underlying at the strike price, on or before expiration.
• A put gives the buyer the right to sell the underlying at the strike price, on or before expiration.

The seller, also called the writer, takes the other side. If the buyer uses the right, the seller must deliver (for a call) or buy (for a put) at the strike. The buyer can choose; the seller cannot.

That gives four basic positions: long call, short call, long put and short put. Each has a very different risk profile, which the payoff lesson draws out.

What do strike, expiration and multiplier mean?

Which numbers on an option are fixed when it is listed, and which keep changing?

• Underlying. The stock, ETF, index or futures contract the option is based on.
• Strike price. The price at which the buyer can buy (call) or sell (put). Exchanges list many strikes at set intervals around the current price.
• Expiration. The last day the option exists. Many products now have expirations every week, and some have them every trading day.
• Style. An American-style option can be exercised on any business day up to expiration. A European-style option can be exercised only at expiration. Most US stock and ETF options are American-style; most cash-settled index options are European-style.
• Multiplier. A standard US stock or ETF option covers 100 shares. A quoted premium of $2.50 therefore costs $250 per contract, before fees. Index and futures options have their own multipliers, set in each contract’s terms.

The strike, expiration, style and multiplier are fixed. The premium changes all day as the market trades.

How do you read an option chain?

How is so much information packed into one row?

An option chain lists all the calls and puts for one underlying and one expiration, sorted by strike. A typical layout puts calls on the left, strikes in the middle and puts on the right. For each contract you might see:

The spread between bid and ask is often wider for options than for the underlying, especially for strikes far from the current price or for expirations far away. That spread is a real cost each time a position is opened or closed.

Option chain diagram

Illustrative diagram constructed for teaching. Not real market data.

The diagram shows a simplified option chain for a fictional underlying, with call quotes on the left, strikes in the middle and put quotes on the right. It is constructed for teaching and is not real market data.

Who can lose how much?

Which position, and over which stage of its life?

For a long option that remains an option, maximum loss is its premium paid plus applicable costs. Exercise can create a share or futures position whose subsequent losses and funding needs are not capped by that original premium. Cash-settled products use their own settlement terms. Compare those mechanics in Exercise, Assignment and Settlement.

For the following unadjusted stock-option comparison, assume one 100-share contract, a stock price that cannot fall below zero and no fees:

• Long call or put: the option-only loss is the premium paid. This is not a promise about a resulting underlying position.
• Uncovered short call: loss has no finite upper bound as the stock price rises.
• Short put: expiry loss if stock falls to zero is (strike−premium received per share)×100, assuming no offsetting stock/option position. This is substantial but bounded for this stock-price model, unlike the uncovered call’s rising-price exposure. It is not a universal futures-option bound.

Fictional example: Sell one 40-strike stock put for $1 per share. Premium received = $100. If stock is zero at expiry, intrinsic liability is $4,000, so expiry loss before costs is $4,000−$100 = $3,900. If assigned, the purchase obligation itself is $4,000, not merely the $3,900 net-loss figure. Existing holdings, spreads, adjusted deliverables and costs change a whole-position analysis; do not label every option seller as having the same risk.

What this does not tell you about options

• Options are complex and carry risks that this introduction does not cover in full. In the United States, brokers must give customers the official options risk disclosure document before approving an options account. Read it.
• Contract terms, including multipliers and settlement, differ by product. Adjusted contracts after corporate actions can have non-standard terms.
• A quote on a chain is not a guarantee you can trade at that price.
• Nothing here suggests that buying or selling any option is suitable for you.

Check yourself

1. What right does a put buyer have, and what obligation does a put seller take on? Hint: sell at the strike.
2. A stock option is quoted at $1.40. What does one contract cost before fees, assuming the standard multiplier? Hint: 100 shares.
3. Why can a short call lose more than a long call? Hint: how high can a price go?
4. In the fictional 40-strike put example, identify the premium received, stock-purchase obligation on assignment, and ideal expiry loss at stock zero. Would the same “stock cannot go below zero” loss bound automatically apply to an unspecified futures option?

Last reviewed November 8, 2026. Spotted a mistake? Report an error.