Unit 2 · Level 4 · Options I
Buying vs selling options
Option BUYERS pay premium for defined risk and open-ended upside; they win rarely but big. Option SELLERS collect premium with capped profit and larger tail risk; they win often but small. Neither side is 'right'; they're different businesses with different bookkeeping. The disaster is running one while thinking you're in the other.
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What you get asked
Match the role to its profile
The covered call is the gentle introduction to selling: worst case, your shares get sold at the strike. The naked call is shorting with extra steps. Leave it to institutions.
You own 100 AAPL shares at $250. You sell a $270 call for $4. What did you just do?
A covered call. If AAPL stays under $270: keep shares + $400. If it flies past: shares sell at $270 (+$2,000) and you keep the $400 but miss the extra. Income traded for capped upside: a conscious, popular deal.
Most far-OTM weekly options expire worthless. So why do people keep buying them?
Survivorship bias as marketing. The 0.05-delta lotto ticket pays for someone's theta business ~19 times in 20. Social feeds show the 20th. You've seen this movie in every market by now.
Selling options for income works until one unmanaged ___ event returns years of premium at once.
'Picking up pennies in front of a steamroller': profitable months, then a crash devours them. Sellers survive by defining risk (spreads, League 5) and sizing for the storm, not the sunshine.
Which single question decides whether YOU should be buying or selling a given option?
And does my thesis, timeline and risk plan match that side?'. Directional conviction with a deadline → buying can fit. Neutral/range thesis with risk discipline → selling can fit. The side follows the THESIS, never the other way. Boss next. 🐜
The rest of this unit
Calls, puts, premium anatomy, delta & theta: risk as a design input.