Options Basics

All programming is composed of only 3 core components:
1) if
2) while
3) assignment statements
That’s it. From these 3 building blocks, all computer code emerges.

In options trading, there are only 2types of options:
1) call
2) put
That’s it. From these 2 simple types of transactions, all options strategies are built.

What is a call? A call is the right to buy a security at a predetermined price.
What is a put? A put is the right to sell a security at a predetermined price.

Since a transaction requires 2 parties, there are 2 possible transactions for both calls and puts:
1) buy
2) sell

So now we have 4 transactions that can occur with options:

  • Buying a call: You have the right to buy a security at a predetermined price.
  • Selling a call: You have an obligation to deliver the security at a predetermined price to the option buyer if they exercise the option.
  • Buying a put: You have the right to sell a security at a predetermined price.
  • Selling a put: You have an obligation to buy the security at a predetermined price from the option buyer if they exercise the option.

From <https://www.investopedia.com/articles/optioninvestor/10/sell-puts-benefit-any-market.asp>

From this basic foundation, let’s build some option trading strategies…

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