Options contracts come in two basic varieties,
calls
and puts,
and you can buy or sell either one.
If you buy a call, you have the right to buy the
underlying
instrument
at the strike price before the
expiration
date.
If you buy a put, you have the right to sell
the underlying instrument at the
strike
price
before the option expires.
The situation is different if you sell an option,
since selling obligates you to fulfill your side of the contract
if the option is
exercised.
If you sell a call,
you're obligated to sell the underlying instrument at
the strike price, if the option is exercised.
If you sell a put,
you're obligated to buy the underlying instrument at
the strike price, if the option is exercised.
As a seller, you have no control over whether
or not a contract is exercised, though it's very likely
if the price of the underlying investment exceeds the strike price,
in the case of a call, or falls below it, in the case of a put.
But you always have the right to purchase an offsetting contract
— ending your obligation to meet the terms of the contract
if exercise seems likely.
Learn
the language
If you buy options, you're an options holder.
If you sell options, you're an options writer.
Selling the right to buy the underlying security from
you is known as writing a call. Selling the right
to sell the underlying security to you is known as
writing a put.
