What Is an Option? A Plain-English Guide to Calls and Puts — Through the Eyes of an Option Seller

Discover the true power of options by learning how selling premium can provide a consistent edge — without needing to predict market direction.

Options are often misunderstood. Labeled “risky,” “complicated,” or “just another way to lose money,” they’re too often dismissed by the very traders who could benefit from them the most.

But the truth? Options are simple.

They’re just contracts — and more importantly, they’re tools. Tools that allow strategic, probability-driven traders to sell time, manage risk, and get paid while others guess market direction.

In this plain-English guide, you’ll learn what options are, how they work, and why option sellers — not buyers — often come out ahead.

🧾 The Basics: What Is an Option?

An option is a contract between two parties:

• The buyer of the option pays a premium for the right to buy or sell stock at a fixed price (the strike price) before a certain date (the expiration).

• The seller of the option receives that premium, and in return, takes on the obligation to fulfill the terms of the contract if the buyer chooses to exercise it.

Each standard option controls 100 shares of the underlying stock or ETF.

There are two types:

• Call Option: The right to buy a stock at a specific price.

• Put Option: The right to sell a stock at a specific price.

🎟 Real-World Analogy: The Concert Ticket… With a Twist

Let’s say you pay $10 to reserve the right to buy Taylor Swift tickets for $200 before June 1. If prices jump to $500, you got a bargain. If not, you let the reservation expire.

That’s an option buyer’s world: small upfront cost, potential big reward, but high probability of loss.

Now imagine you’re the person selling that reservation.

You collect $10 from every person who might want to go to the concert. Most won’t. Some will. But your edge lies in the fact that time is working in your favor. And you get paid upfront.

That’s what option selling is all about.

📈 What Is a Call Option?

A call option gives the buyer the right (not obligation) to buy stock at the strike price.

Call buyer’s mindset: “I think the stock will go up.”

Call seller’s mindset: “I don’t think it’ll rise that much by expiration — and if it doesn’t, I keep the premium.”

🧠 Seller’s Example: Covered Call

Let’s say you own 100 shares of Apple at $190. You sell a call with a $200 strike for $3.

• If Apple stays below $200 by expiration, you keep the $3 per share ($300 total), plus any gains on the stock.

• If Apple closes above $200, you’re “called away” — you sell at $200, lock in your profit, and still keep the $3 premium.

This is one of the most powerful ways to create monthly income from stocks you already own.

It’s like collecting rent from a property — except you’re collecting time decay from an option.

📉 What Is a Put Option?

A put option gives the buyer the right to sell stock at the strike price.

Put buyer’s mindset: “I think the stock will drop.”

Put seller’s mindset: “I want to own the stock — and if it doesn’t fall enough, I’ll keep the premium.”

🧠 Seller’s Example: Cash-Secured Put

Let’s say you want to buy shares of Microsoft at $430 — but only if you can get a discount.

Instead of placing a limit order, you sell the $430 put for $4.

• If Microsoft drops below $430, you’re assigned the shares — but you paid $426 net ($430 minus the $4 premium), which is better than buying at market.

• If it stays above $430, you keep the $400 and simply do it again next month.

This is how many disciplined traders “get paid to wait” for the stocks they want — on their terms.

📊 Key Terms (Seller’s Edition)

• Strike Price – The price at which you’re obligated to sell (if you sold a call) or buy (if you sold a put) the stock if the option is exercised.

• Premium – What the buyer pays you. You receive this upfront.

• Expiration Date – When the contract ends.

• ITM (In the Money) – More likely to be exercised.

• OTM (Out of the Money) – Less likely to be exercised.

• Theta (Time Decay) – Your best friend as a seller. Time erodes the option’s value, and you benefit from it.

⚖️ Buyer vs. Seller: Which Has the Edge?

⚙️ Visualizing the Mindset: Betting vs. Insurance

• An option buyer is like buying a lottery ticket — you risk a little for the chance of a lot.

• An option seller is like the casino — you earn small, steady gains by stacking the odds in your favor.

Or think of it like insurance:

• Buyers are like homeowners paying for fire insurance — hoping they don’t need to use it.

• Sellers are like the insurance company — collecting small premiums on the expectation that most policies expire without claims.

📈 Why I Sell Options — And Why You Might Consider It Too

I don’t trade on predictions. I trade on probabilities.

Selling options — especially defined-risk spreads, cash-secured puts, and covered calls — allows me to:

✅ Collect income regardless of market direction
✅ Choose high-probability trades using IV rank, expected move, and probability of profit (or probability of success)
✅ Limit risk using risk-defined spreads which allow for precise capital allocation (position-sizing)
✅ Stack small wins over time using the law of large numbers

The goal isn’t to get rich on one trade — it’s to collect steady premium, control risk, and build consistent results over time.

🧠 The Edge of the Option Seller

Selling options lets you:

• Control outcomes: You define your risk before placing the trade.

• Profit from stagnation: You don’t need a move — just not a move against you.

• Use volatility to your advantage: Higher implied volatility = higher premiums = greater edge.

For example, in The Option Premium, we often sell iron condors on SPY, QQQ, or DIA when implied volatility spikes. These structures profit as long as the underlying stays within a specific, oftentimes wide, range — and theta decay works in our favor every day.

🧭 How to Start Selling Options (The Right Way)

Start with these six strategies:

• Cash-Secured Puts – Ideal for those looking to own stocks at a discount.

• Covered Calls – Great for generating income on stocks you already own.

• Poor Man’s Covered Calls – A capital-efficient twist on covered calls using LEAPS; ideal for generating income with far less capital.

• Vertical Credit Spreads – Defined-risk income trades with limited capital.

• Iron Condors – Market-neutral strategies that profit in range-bound markets.

• Jade Lizards / Strangles – For advanced traders who understand risk layering and volatility skew.

Each of these structures can be tailored to your risk tolerance, portfolio size, and market view.

📩 Final Word: Simplicity + Probability Wins

Options are not about being right. They’re about structuring trades so that time and probability are on your side.

If you’re new, focus on this path:

🔹 Understand the mechanics of calls and puts
🔹 Learn how time decay (theta) benefits option sellers
🔹 Embrace defined risk trades — avoid open-ended risk
🔹 Build your edge using implied volatility and expected moves
🔹 Size appropriately — small positions, consistent strategies

Above all: Don’t chase. Don’t guess. And don’t try to beat the market in one trade.

Sell time. Stack probabilities. Stay consistent.

📬 If you enjoyed this breakdown, don’t miss next week’s Options 101: First Steps to Trading in The Option Premium—your go-to source for clear, actionable options education.

Probabilities over predictions,

Andy Crowder

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