SIE (Training Consultants v3.5, 2025): Ch. 3 Equity Options, Sec. 2 - Basic Option
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20 Terms
Call Option
A contract giving the buyer the right to purchase 100 shares of the underlying stock at a set exercise price within a limited time.
Put Option
A contract giving the buyer the right to sell 100 shares of the underlying stock at a set exercise price within a limited time.
Holder / Buyer / Long
The investor who buys an option; they have the right to exercise it.
Seller / Writer / Short
The investor who sells an option; they are obligated if the buyer exercises.
Strike Price / Exercise Price
The set price at which the holder of an option can buy (call) or sell (put) the underlying stock.
Aggregate Exercise Price
Strike price multiplied by the number of shares covered by the option (typically 100 shares).
Assignment
When the option seller is obligated to fulfill the contract after the buyer exercises the option.
Premium
The price of an option contract, quoted per share. Total cost = Premium × 100 shares.
Shares per Contract
One standardized option contract typically represents 100 shares of the underlying stock.
Duration of Options
Standardized options have a maximum expiration of 9 months.
What does buying a call option allow you to do?
Buy 100 shares of the underlying stock at the strike price before expiration.
What does selling a call option obligate you to do?
Sell 100 shares of the underlying stock at the strike price if exercised.
What does buying a put option allow you to do?
Sell 100 shares of the underlying stock at the strike price before expiration.
What does selling a put option obligate you to do?
Buy 100 shares of the underlying stock at the strike price if exercised.
Who is the holder of an option?
The buyer/long, who has the right to exercise the option.
Who is the writer of an option?
The seller/short, who is obligated if the buyer exercises.
How is the aggregate exercise price calculated?
Strike price × number of shares (usually 100).
How much does a premium of $4 cost for one option contract?
$400 (4 × 100 shares).
What happens when an option is assigned?
The seller must fulfill the contract after the buyer exercises the option.
How many shares does a standard option contract represent?
100 shares.