What do you actually buy when you buy an option?

Forwards, futures and swaps all share one property: both sides must perform. The option family breaks that symmetry, and everything strange about options follows from the break.

• A call gives its buyer the right, not the obligation, to buy the underlying at a fixed strike price, on or before a fixed expiry.
• A put gives the right, not the obligation, to sell at the strike.
• The seller (or writer) of either has the mirror position: an obligation, not a right. If the buyer exercises, the seller must perform.

Because that deal is one-sided, the buyer pays for it upfront. That payment is the premium, and it is the only money the buyer can ever lose.

The arithmetic of a call, line by line

A share trades at $100. You pay $3 for a three-month call with a $105 strike. At expiry:

Two numbers fall straight out:

• Breakeven = strike + premium = $105 + $3 = $108. The share must clear the strike by more than the premium before the buyer is ahead.
• Maximum loss for the buyer = the premium. $3. It cannot become $4, whatever the share does. That defined floor is the genuinely distinctive feature of a long option.

Note also the third row from the top: at $105 the option expires worthless even though the buyer's directional view — the share went up — was correct. Being right about direction and losing the entire premium is not an edge case; it is routine.

Now read the same table from the seller's chair

The seller collected $3. Their column is the exact negative of the buyer's:

• Share at $98 → keeps +$3. Share at $105 → keeps +$3.
• Share at $130 → pays out $25, keeps the $3 → −$22.
• Share at $200 → pays out $95 → −$92.

Maximum gain $3; loss with no defined ceiling. State it plainly, because it is the single most consequential asymmetry in this domain: a person who sells a call without owning the underlying can lose many times the amount they received, and there is no arithmetic floor to it. Unit 4 opens with a bank destroyed by exactly this shape.

Where the $3 comes from

The premium splits into two parts:

• Intrinsic value — what the option would be worth if it expired right now. For a $105 call with the share at $100, that is zero.
• Time value — everything else. Payment for the possibility that the share moves before expiry. It depends mostly on how far away expiry is and how much the share typically moves.

So the entire $3 above is time value, and it decays to zero by expiry with mathematical certainty. A later course in this domain builds the pricing properly; here it is enough to know the premium is not arbitrary and not a fee — it is the price of an asymmetry.

In the data

Apple's listed options chain is below, in the EODHD Terminal, one expiry at a time: calls on one side of the strike column, puts on the other. The chain is marketplace data, so it is read there rather than reproduced on this page.

Open AAPL.US — options in the EODHD Terminal

Read across one strike. The call and the put share that price and nothing else: each has its own bid and ask, its own open interest, and a delta of the opposite sign. A strike is a price, not a contract; the contract is the strike plus an expiry plus a direction.

Try it now

1. In the chain above, pick an expiry, then one call, and note its strike, its expiry and its last traded premium (the Last column).
2. Compute the breakeven (strike + premium) and express it as a percentage above today's share price, below. How far must the share travel, and by when?

3. Build the buyer's payoff at three prices — well below the strike, at breakeven, and 20% above — then write the seller's number beside each. Seeing both columns together is the point of the exercise. None of this is a suggestion to buy or sell an option; it is the payoff arithmetic that any such decision would rest on.