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LESSON 10 / Options

Know the contract before the strategy

An options strategy combines contractual rights, obligations, and a deadline. Learning the vocabulary is the first part of understanding the exposure.

Buyer and seller have different roles

A call gives its buyer a right to buy the underlying asset at the strike price under the contract’s terms. A put concerns the right to sell. The buyer pays a premium. An option writer accepts obligations that can arise through exercise and assignment.

Check the contract details

Standard listed equity options commonly represent 100 shares, but adjusted contracts can differ. Check the multiplier, expiration, settlement, and exercise terms. A per-share premium must be multiplied by the contract size to understand the cash amount involved.

Separate expiry payoff from a live option price

Before expiration, an option’s value depends on several variables, including time and volatility. An expiration diagram simplifies that picture. A buyer can lose the entire premium; some writing strategies can create losses beyond the premium received. The practice calculator illustrates selected outcomes and omits several real-world complications.

Put the idea into practice.

Use the options practice tool to move an expiration price above and below break-even. Explain the difference between being in the money and making a profit.

Open the practice tool ↗

Check your understanding.

Can a call finish in the money while its buyer still has a net loss?

Review the concept

A positive intrinsic value can still be smaller than the original premium and costs.

Original Lyfter education · Updated 2026-11-13. Examples are hypothetical and do not provide a personal investment recommendation.

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