SIE (Training Consultants v3.5, 2025): Ch. 3 Equity Options, Sec. 3 – Traditional Listed Options Home Base Ch

Buyer / Long / Holder (Driver)

Controls whether the option is exercised; seeks maximum profit or protection.

Seller / Writer / Short (Passenger)

Does not control exercise, earns premium income; must consider if covered or uncovered.

Call Option

• Buy Call → Right to buy stock if exercised (bullish).

Who controls whether an option is exercised?

Who earns premium income without controlling exercise?

The seller/writer (passenger).

Which option position is the most conservative?

Short covered call.

Which option position is the most speculative?

Short uncovered (naked) call.

When do investors buy options?

To seek maximum profit potential or protection.

When do investors sell options?

To seek income or increased rate of return.

What does a buy call give the investor?

Right to buy stock if exercised (bullish).

What does a sell call obligate the investor to do?

Obligated to sell stock if exercised (bearish).

What does a buy put give the investor?

Right to sell stock if exercised (bearish).

What does a sell put obligate the investor to do?

Obligated to buy stock if exercised (bullish).

• Sell Call → Obligated to sell stock if exercised (bearish).

Put Option

• Buy Put → Right to sell stock if exercised (bearish).
• Sell Put → Obligated to buy stock if exercised (bullish).

Covered Call

Most conservative option position; seller owns underlying stock or equivalent coverage.

Uncovered (Naked) Call

Most speculative; unlimited loss potential.

Premium Income Strategy

Investors seeking income or higher return are generally sellers/writers of options.

Maximum Profit/Protection Strategy

Investors seeking maximum profit potential or protection are generally buyers/holders of options. #