Options 101: Calls, Puts, Premium, Expiration
An option is not a stock substitute. It is a time-limited contract that bundles four prices into one — direction, strike, duration, and premium — and resolves at a fixed future date. At Closelook options are used as portfolio tools: to generate income on holdings, to set disciplined entries on names the desk wants to own, and to express tactical views with defined risk. Used badly they create leverage and blowups. Used carefully they sharpen the portfolio.
The Four Building Blocks
Call — the right (not obligation) to buy 100 shares at the strike price by expiration. Buyers want the stock to rise. Sellers collect premium for taking the opposite side.
Put — the right to sell 100 shares at the strike price by expiration. Buyers want the stock to fall, or want downside protection on a holding. Sellers collect premium and accept the obligation to buy if assigned.
Strike — the agreed price at which shares would change hands.
Expiration — the fixed date the contract resolves. Options expire weekly, monthly, or longer-dated (LEAPs).
Buyer vs Seller — Opposite Trades
Every option has two sides. The buyer pays premium for optionality — limited risk, potentially unlimited reward. The seller collects premium and accepts obligation — capped reward, potentially unlimited risk on naked positions. Time decay (theta) works against buyers and in favor of sellers. Volatility expansion helps buyers and hurts sellers. Closelook’s options work is almost entirely on the seller side, where the structural edge of time decay can be harvested systematically.
Why Options Exist — The Practical Use Cases
Income on holdings. Selling covered calls against existing positions turns a static stock holding into a yielding asset. See Covered Calls — 101.
Disciplined entries. Selling cash-secured puts on names the desk wants to own commits to a buy price in writing, with premium received in advance. See Cash-Secured Puts — 101.
Hedging. Buying puts on a holding caps the downside, at the cost of the premium paid. Used selectively around concentrated single-stock risk or event windows.
Defined-risk views. Vertical spreads — buying one option and selling another at a different strike — express a directional view with capped maximum loss. Useful when the view is right-direction but the timing is uncertain.
What This Series Covers
The Derivatives 101 stack is built around the two strategies that drive the Derivatives Portfolio: Covered Calls and Cash-Secured Puts. The Greeks is the dashboard that explains how every options position behaves. Assignment & Rolling covers what happens when contracts resolve and how to manage them inside a plan rather than as panic moves.