> ## Documentation Index > Fetch the complete documentation index at: https://docs.bigdipperoptions.com/llms.txt > Use this file to discover all available pages before exploring further. # Options Basics > Beginner options foundations from trusted external education, then how those ideas show up in BigDipperOptions. **Learn** · **Foundations · Step 3 of 4** · [Learn home](/learn/overview) · **Prev:** [Delayed Data Disclaimer](/learn/delayed-data-disclaimer) · **Next:** [Using BigDipperOptions](/learn/using-bigdipperoptions) *** Build vocabulary **before** the wheel modules. Use external primers for teaching, then connect each idea to BigDipperOptions. External sites are independent of BigDipperOptions. Links are for education only. *** ## 1. What is an option? In plain terms, an **option** gives the buyer the right—not the obligation—to buy or sell an **underlying** (such as a stock) at a fixed **exercise price** before **expiration**. The seller collects **premium** and may be obligated if the buyer exercises. In the U.S., one standard equity option contract usually controls **100 shares** of the underlying. When you see a quoted option price of **\$2.50**, that is typically **per share**—so one contract often costs **\$250** plus fees (\$2.50 × 100). ### Official definition (OCC) > An option is the right to buy or sell a specified amount or value of a particular underlying interest at a fixed exercise price by exercising the option before its specified expiration date. > > An option that gives the right to buy is a **call option**, and an option that gives the right to sell is a **put option**. Calls and puts are distinct types of options, and buying or selling of one type does not involve the other. Certain special kinds of options may give a right to receive a cash payment if certain criteria are met. Source: [Characteristics and Risks of Standardized Options (PDF) – OCC](https://www.theocc.com/getcontentasset/a151a9ae-d784-4a15-bdeb-23a029f50b70/dfc3d011-8f63-43f6-9ed8-4b444333a1d0/riskstoc.pdf) ### Key terms | Term | Meaning | | - | - | | **Underlying** | The asset the option is tied to (e.g. a stock or ETF) | | **Exercise price (strike)** | The fixed price at which the option can be exercised | | **Expiration date** | The last day the option can be exercised (rules vary by contract) | | **Premium** | The price paid by the buyer to the seller for the option | | **Contract** | One listed option; for most U.S. stocks, 1 contract = 100 shares | ### Call vs put | Type | What the buyer gets | | - | - | | **Call** | The right to **buy** the underlying at the exercise price | | **Put** | The right to **sell** the underlying at the exercise price | Calls and puts are **separate** instruments—buying or selling one does not involve the other. ### Further reading * [Options – Investor.gov Glossary](https://www.investor.gov/introduction-investing/investing-basics/glossary/options) * [Options Disclosure Document overview – OCC](https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document) **On BigDipperOptions:** [Options Chain intro](/optionschain/options-chain-intro) · [Glossary](/faq/glossary) *** ## 2. Premium, buyers, and sellers Every option trade has two sides: | Role | Pays / receives | Gets | | - | - | - | | **Buyer (long)** | Pays **premium** | The **right** to exercise | | **Seller (short)** | Receives **premium** | The **obligation** if assigned | Premium is not a “prediction” of profit. It is the market’s price for that right or obligation today. It generally moves with: * **Time left** until expiration (more time often means higher premium) * **Distance** between the stock price and the strike * **Volatility** expectations (**implied volatility / IV**)—on BigDipperOptions, IV feeds the composite [score](/introduction/what-is-score) so you can screen without raw broker columns; confirm **live IV at your brokerage** before you trade * **Interest rates** and dividends (secondary for beginners) A buyer’s **maximum loss** on the option itself is usually the premium paid (plus fees). A seller’s risk can be **much larger**, depending on the position—especially naked calls. ### Bid, mid, and ask On your broker’s option chain, each contract usually shows three prices: | Label | Plain meaning | | - | - | | **Bid** | Highest price a **buyer** offers right now | | **Ask** | Lowest price a **seller** wants right now | | **Mid** | Midpoint between bid and ask—a **reference only**, not a guaranteed fill | The **spread** (ask minus bid) is part of your real trading cost. A **wide spread** means you keep less when you **sell** an option, or pay more when you **buy to close**. **If you sell premium** (puts or calls): you often open near the **bid** and close near the **ask**. Do not plan trades using **mid** alone—check live bid and ask at your broker before you order. **On BigDipperOptions:** [Price Direction Bias](/optionschain/price-direction-bias) · [Options Trend Graph](/optionschain/options-trend-graph) *** ## 3. Strike, expiration, and moneyness Options are identified by **underlying + expiration + strike + call or put**. **Example:** “AAPL Jan 17 2027 \$200 call” means a call on Apple expiring on that date with a \$200 exercise price. **Days to expiration (DTE)** is how many days remain until that expiry date. Brokers may count calendar days or trading days slightly differently—check yours. You will see **DTE** on chains, filters, and the Wheel page when comparing contracts. ### In the money, at the money, out of the money These labels describe the **relationship between the stock price and the strike**—not whether a trade is “good.” | Label | Call (simple view) | Put (simple view) | | - | - | - | | **In the money (ITM)** | Stock price **above** strike | Stock price **below** strike | | **At the money (ATM)** | Stock price **near** strike | Stock price **near** strike | | **Out of the money (OTM)** | Stock price **below** strike | Stock price **above** strike | ITM options usually cost more premium because they already have **intrinsic value** (the exercise would have immediate economic sense). OTM options are often cheaper but need a larger move to be worth exercising. *** ## 4. Opening and closing a position You do not have to hold until expiration. Most traders **open** and **close** positions in the market. | Action | Plain English | | - | - | | **Buy to open** | You pay premium and become the **buyer** (long) | | **Sell to open** | You receive premium and become the **seller** (short) | | **Sell to close** | You exit a **long** position by selling it back | | **Buy to close** | You exit a **short** position by buying it back | **Exercise** is different from closing: the buyer uses their right to buy or sell the underlying at the strike. Many index and equity options are **American-style** (can be exercised before expiration in many cases), but most active traders still **close** in the market rather than exercise early. Rules depend on the contract—check your broker and the OCC materials. *** ## 5. What happens at expiration? If an option is still open at expiration: * **Long OTM** options often **expire worthless**—the buyer loses the premium paid. * **Long ITM** options may be **exercised** (automatic exercise rules vary—confirm with your broker). * **Short** options may be **assigned** if the buyer exercises or if automatic exercise applies. You can usually see **open interest (OI)** and **volume** on a chain; high activity at a strike does not by itself tell you what *you* should do—it only shows where others are positioned. *** ## 6. Assignment (critical for the wheel) **Assignment** is when the option seller must fulfill the obligation—typically **100 shares per contract** for standard U.S. equity options. | Short position | If assigned, you may… | | - | - | | **Put** | **Buy** shares at the strike | | **Call** | **Sell** shares at the strike | The wheel strategy **uses** assignment on purpose (cash-secured puts and covered calls). That only works if you: * Chose a strike you are willing to own or sell at * Sized the position within your account limits * Understand you may get shares **even when the timing is inconvenient** Assignment can happen **before** expiration, not only on the last day. **On BigDipperOptions:** The Wheel track includes [cash-secured put and covered-call videos](/learn/wheel-module-1-foundations); assignment management is covered later in that track. *** ## 7. A few habits that help every beginner * **Read the contract**—ticker, date, strike, call vs put, and whether you are long or short * **Know your max risk** before you open; selling options is not “free money” * **Use a [paper trading](/learn/using-bigdipperoptions#paper-trading-before-live-size) account or small size** until assignment and closing feel familiar * **Confirm live prices at your broker**—chart prices on research sites (including BigDipperOptions) are [delayed](/learn/delayed-data-disclaimer) *** ## Checkpoint * [ ] I can explain **call vs put** in one sentence * [ ] I know **1 contract ≈ 100 shares** for standard U.S. stock options * [ ] I can name **buyer vs seller** and who pays premium * [ ] I understand **ITM / OTM** in plain language * [ ] I know **assignment** can happen when I sell options * [ ] I read the [data delay](/learn/delayed-data-disclaimer) note **Next:** [Foundations · Step 4 — Using BigDipperOptions](/learn/using-bigdipperoptions) This documentation is built and hosted on [Mintlify](https://mintlify.com), a developer documentation platform.