Unit 1 · Level 1 · Calls & puts
Unit review: the contract
One contract, two flavours: a call is the right to buy at the strike, a put is the right to sell. The buyer pays a premium, risks only that premium, and holds a right; the seller pockets the premium and takes on an obligation. Break-even: strike + premium for calls, strike − premium for puts. That's the skeleton every later lesson hangs on.
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What you get asked
Match each piece to its role in the contract.
If you can recite these four cold, everything in options pricing becomes arithmetic on top.
You buy a €50-strike put for €2. Where is break-even at expiry?
Puts break even at strike minus premium: €50 − €2 = €48. The stock must fall past that for a net profit.
Unlike buyers, option sellers take on an ___ to deliver if the buyer exercises.
The premium changes hands precisely because the seller accepts a duty the buyer doesn't have. Rights cost money; obligations earn it.
Put the life of a winning call trade in order.
A €14 stock move became a 4x return on the premium. That's the leverage inside options, and it cuts both ways.
The core asymmetry of buying options is…
Capped downside, open upside: that's the shape you bought. The catch, as the next units show, is that you pay for that shape every single day. 🐜
The rest of this unit
The right, not the obligation: the contract at the heart of every option.