Options Basics: Calls, Puts, Strikes & Assignment

1 - The Basics

An option is a contract tied to 100 shares of a stock. It gives one side the right to buy or sell those shares at a fixed price by a fixed date - and binds the other side to the obligation on the flip side of that right. Everything else is detail on top of that one idea.

Educational only - not investment advice. Options involve substantial risk and aren't suitable for every investor. Nothing here is a recommendation to buy or sell anything. Examples are simplified and ignore commissions, taxes, and assignment timing. Consider speaking with a licensed financial professional.

Calls and puts

There are two kinds of option:

A call is the right to buy 100 shares at the strike price.
A put is the right to sell 100 shares at the strike price.

Calls tend to gain value when the stock rises; puts tend to gain value when it falls. But who holds the right - and who carries the obligation - depends on whether you bought or sold the contract. That's the part beginners trip on, so here it is in one grid.

Buying vs selling: rights and obligations

	You BUY (go long)	You SELL (go short / write)
CALL	Right to buy at the strikeYou pay a premium. If the stock rises above the strike you can buy cheap (or just sell the now-pricier option). Most you can lose is the premium.	Obligation to sell at the strikeYou collect a premium. If the buyer exercises, you must deliver 100 shares at the strike - even if the market price is far higher. Risk is large (open-ended if you don't own the shares).
PUT	Right to sell at the strikeYou pay a premium. If the stock falls below the strike you can sell high (or sell the now-pricier option). Most you can lose is the premium.	Obligation to buy at the strikeYou collect a premium. If the buyer exercises, you must buy 100 shares at the strike - even if the market price is far lower. Risk is large.

The key asymmetry: when you buy an option, you hold a right and your loss is capped at the premium you paid. When you sell one, you collect the premium but take on an obligation - and your risk can be much larger than what you collected. That difference is the heart of options risk.

What a long call looks like

Buying a $100 call for $5/share. Below $100 you lose the $5 premium; above $105 (strike + premium) you profit. Upside is open-ended.

Worked example - long call

You buy one $100 call on a stock for a $5 premium. One contract = 100 shares, so it costs $500. At expiration: if the stock is at $95, the call is worthless and you lose the $500. At $105 you break even. At $115 the call is worth $15/share = $1,500, a $1,000 profit. Your downside is fixed at $500; your upside grows with the stock.

What a long put looks like

Buying a $100 put for $5/share. Above $100 you lose the $5 premium; below $95 (strike - premium) you profit as the stock falls.

Worked example - long put

You buy one $100 put for $5 ($500 total). At expiration: at $105 it's worthless (-$500). At $95 you break even. At $85 the put is worth $15/share = $1,500, a $1,000 profit. Puts let you profit from - or protect against - a falling stock, with loss capped at the premium.

In, at, and out of the money

"Moneyness" describes where the stock sits relative to the strike right now:

In the money (ITM) - the option has real exercise value. A call is ITM when the stock is above the strike; a put is ITM when the stock is below it.
At the money (ATM) - stock is right around the strike.
Out of the money (OTM) - no exercise value yet. A call is OTM below its strike; a put is OTM above its strike. OTM options are cheaper but need the stock to move to pay off.

Strikes

The strike is the fixed price in the contract - the price at which the call holder can buy, or the put holder can sell. A single stock has many strikes listed (e.g. every $1, $2.50, or $5 apart). Lower-strike calls and higher-strike puts cost more (they're closer to or already in the money); far-OTM strikes are cheap lottery-ticket-like bets that usually expire worthless.

Expiration and assignment

Every option has an expiration date. After it, the contract is gone. At expiration an option that's in the money is typically exercised automatically; one that's out of the money expires worthless. Assignment is the other side of exercise: if you sold an option and the holder exercises, you're assigned and must fulfill the obligation - deliver shares (short call) or buy shares (short put). Assignment can sometimes happen early on American-style options, which is a key risk for sellers.

What am I looking at?

Flow Alerts are individual options trades large or unusual enough to stand out, on a single stock. These are the "smart money" prints people watch, because a big, decisive options bet often reflects a strong conviction.

Premium is the total dollars spent on the trade. Size is how many contracts changed hands. OI (open interest) is how many contracts of that exact option already existed. When size is large relative to OI, the trade is likely opening a fresh position rather than closing an old one, which tends to be the more meaningful signal.

A green CALL is a bet the stock rises; a red PUT is a bet it falls. One alert is just one trade, not a recommendation, so it is the pattern across many that tells a story.

Ready to see real call and put activity? The Smart Money Flow tool shows live options flow (login required).