Unit 2 · Level 4 · Options I
Options: the right, not the duty
An option is a contract giving the RIGHT (never the obligation) to buy (CALL) or sell (PUT) an asset at a fixed price (the STRIKE) before a deadline (EXPIRY). You pay a PREMIUM for that right. Options let you rent exposure, define risk exactly, insure holdings, and sculpt payoffs no plain position can match.
Free to play. No ads, no token, no account needed to start.
What you get asked
Match the option term to its meaning
These four words are the whole options vocabulary. Everything else is combinations.
You buy a call on AAPL, strike $250, expiring next month, premium $5. AAPL rockets to $280. Your right is now worth at least…
The option's 'intrinsic value' is the gap between market and strike. A $30 move turned $5 into $30+. That's options' famous convexity. (Mirror scenario: AAPL stays below $250 and the $5 vanishes entirely.)
The BUYER of an option can lose, at absolute most…
This is options' superpower for the disciplined: max loss chosen and prepaid. No liquidations, no margin calls, no surprises. The risk was the receipt.
Buying a put against a holding you own works like ___ for your portfolio.
The 'protective put': pay a premium, and no matter how far your asset crashes, you can still sell at the strike. Institutions hedge exactly this way, and now the mechanism is yours.
Why does Formi teach options as 'risk sculpting' rather than 'lottery tickets'?
Intent decides the game. Weekly far-out-of-money calls ARE lottery tickets (premiums mostly burn). Protective puts and sized defined-risk trades are engineering. Same tool, opposite intent. 🐜
The rest of this unit
Calls, puts, premium anatomy, delta & theta: risk as a design input.