SIE Ready🎯 Options · Lesson 1 of 6 · 5 min
Calls Up, Puts Down: Who Has the Right?
🎯 An option is a contract with two very different sides. One side pays for a choice; the other side gets paid to accept an obligation.
💡 Key idea
Buyers have rights, sellers have obligations. Long call and short put are bullish; long put and short call are bearish. One contract usually covers 100 shares.
🧠 Why it matters
A CALL gives its buyer the right to BUY 100 shares at the strike price until expiration. A PUT gives its buyer the right to SELL 100 shares at the strike price. The buyer (the HOLDER, or long) pays a premium and has RIGHTS. The seller (the WRITER, or short) receives the premium and has OBLIGATIONS: a call writer must sell the shares if assigned; a put writer must buy them. Memory aid: Call up, Put down. Buying a call or writing a put is bullish; buying a put or writing a call is bearish. Example: a call on XYZ with a 50 strike, bought for a premium of 3, costs 3 × 100 = $300.
📈 In the real world
📞 Dana thinks shares of a fictional retailer will rise, so she buys one call. Her neighbor Raj thinks the same stock will stay flat or climb, so he writes a put and collects the premium. Both are bullish, but Dana holds a right she may ignore, while Raj has promised to buy 100 shares at the strike if assigned.
📌 Takeaways
- Holder = buyer = long = pays premium = has rights
- Writer = seller = short = receives premium = has obligations
- Bullish: long call, short put. Bearish: long put, short call
📖 Terms in this lesson
Call option: A contract giving its buyer the right to buy the underlying, usually 100 shares, at the strike price until expiration.
Put option: A contract giving its buyer the right to sell the underlying, usually 100 shares, at the strike price until expiration.
Holder (long): The option buyer, who pays the premium and owns the right to exercise.
Writer (short): The option seller, who receives the premium and must perform if assigned.
BUY CALL, SELL PUT = BULL: Buying a call or selling a put is bullish; buying a put or selling a call is bearish.
✅ Test yourself
An investor who writes a put has which of the following?
- The right to buy the stock at the strike
- The right to sell the stock at the strike
- The obligation to buy the stock if assigned
- The obligation to sell the stock if assigned
Answer: C · The obligation to buy the stock if assigned
A put writer receives the premium and is obligated to BUY the shares at the strike price if assigned. The right to sell belongs to the put buyer; the obligation to sell belongs to a call writer.
Which pair of positions are both bearish?
- Long call and short put
- Long put and long call
- Short put and short call
- Long put and short call
Answer: D · Long put and short call
A long put profits when the stock falls, and a short call profits when the stock does not rise. Long calls and short puts are bullish, so any pair containing them is not purely bearish.
An investor buys 2 calls at a premium of 4. How much does the investor pay, ignoring commissions?
- $800
- $8
- $400
- $80
Answer: A · $800
Premiums are quoted per share and each contract usually covers 100 shares: 4 × 100 × 2 contracts = $800. $400 is the cost of only one contract; $8 forgets the 100-share multiplier.
SIE-style questions, XP and streaks in the app. No sign-up needed.