SIE (Training Consultants v3.5, 2025): Ch. 3 Equity Options, Sec. 1 – Introduction to Equity Options
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12 Terms
Option
A contract that gives one person the right to buy or sell an underlying asset at a specified price within a set time, while obligating the other party to fulfill the contract if exercised.
Call Option
A type of option that gives the buyer the right to buy the underlying asset at a specified price.
Put Option
A type of option that gives the buyer the right to sell the underlying asset at a specified price.
Side Bet
An informal way to describe options as a way to profit from stock price movements without fully buying or selling the stock.
Bullish Investor
An investor who expects the price of a stock to rise; may buy a call option to benefit.
Bearish Investor
An investor who expects the price of a stock to fall; may buy a put option to benefit.
What is an option?
A contract giving the holder the right, but not the obligation, to buy or sell an asset at a specified price within a certain period.
How does a call option work?
It gives the buyer the right to buy the underlying asset at a specified price within the option period.
How does a put option work?
It gives the buyer the right to sell the underlying asset at a specified price within the option period.
How can options be thought of as a “side bet”?
Options allow investors to profit from price movements without owning the stock outright.
What would a bullish investor likely do with options?
Buy a call option to benefit from expected price increases.
What would a bearish investor likely do with options?
Buy a put option to benefit from expected price decreases.