An option is a contract between two strangers about a price in the future. One of them pays for the right to do something. The other is paid to be on the hook if that something happens. That is the whole idea — everything else is detail about which right, at what price, and until when.

The detail matters, though, because a contract has four fields and getting any one of them wrong changes what you agreed to. Build one below and watch the wording change as you move the pieces.

The four fields

Every listed option is fully described by four things. Brokers pack them into a single symbol, which is why an option ticker looks like line noise until you know where to split it.

The underlying is the stock the contract is about. One contract references 100 shares of it. The type is either a call or a put, which decides whether the right is to buy or to sell. The strike price is the price at which those shares would change hands. And the expiration date is when the contract stops existing.

Miss the strike by one increment and you have agreed to a different price. Miss the expiration by a week and you have agreed to a different amount of time. Both are common, expensive beginner mistakes, and both are the kind of thing worth double-checking on the order ticket rather than after the fill.

The 100 that catches everyone out

Options are quoted per share and traded per hundred. A screen showing 1.20 does not mean the contract costs $1.20. It means each of the 100 shares it covers costs $1.20, so the contract costs $120.

This multiplier is what makes options feel violent to people arriving from stock trading. A quote moving from 1.20 to 1.80 looks like a rounding error and is a 50% move worth $60 per contract. Every dollar figure on this site has already been multiplied out, precisely so the number on screen is the number in the account.

Rights and obligations are not symmetrical

The buyer of an option holds a right. They may use it or not, entirely as they please, and if they do nothing the contract simply expires. Their worst case is losing the premium they paid.

The seller holds an obligation. They do not get to choose. If the buyer exercises, the seller must deliver — buy the shares, or hand them over — regardless of what has happened to the stock in the meantime. Their best case is keeping the premium they collected.

That asymmetry is the engine behind every income strategy in this curriculum. Sellers get paid up front, in cash, for accepting an obligation with a worse shape than the payment. Whether that trade is worth making is the subject of most of the rest of these lessons.

Read the bottom row carefully. The seller collected $120 and finished down $480 — but they also own 100 shares. Whether that is a disaster or a Tuesday depends entirely on whether they wanted the shares at that price, which is the distinction between selling a cash-secured put and gambling.

What can go wrong

Confusing the quote with the cost. The multiplier turns a small-looking number into real money in both directions.

Selling an obligation you cannot honour. If you sell a $50 put, you need $5,000 available. A broker will sometimes let you sell it without that cash on margin. That is a different, much riskier trade wearing the same clothes.

Assuming expiration is the only outcome. Most options are closed before expiry, and American-style contracts can be exercised early. Holding to the last day is a choice, not a rule.