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 Getting Started with Options
Mark Benzaquen
Principal, Investor Education
OCC

www.OptionsEducation.org
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Disclaimer
Options involve risks and are not suitable for everyone. Individuals should not enter into options transactions
until they have read and understood the risk disclosure document, Characteristics and Risks of Standardized
Options, available by visiting OptionsEducation.org or by contacting your broker, any exchange on which
options are traded, or The Options Clearing Corporation at 125 S. Franklin St., #1200, Chicago, IL 60606.

In order to simplify the calculations used in the examples in these materials, commissions, fees, margin,
interest and taxes have not been included. These costs will impact the outcome of any stock and options
transactions and must be considered prior to entering into any transactions. Investors should consult their tax
advisor about any potential tax consequences.

Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative
and educational purposes and should not be construed as an endorsement, recommendation, or solicitation
to buy or sell securities. Past performance is not a guarantee of future results.

Copyright ©2022. The Options Clearing Corporation. All rights reserved.

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About OIC
• FREE unbiased and professional options education
• OptionsEducation.org
• Online courses, podcasts, videos, & webinars
• Contact Investor Education at options@theocc.com

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 Annual Options Volume 2000-2021
OCC Annual Contract Volume by Contract Type
12.0

10.0
Cleared Contracts (Billions)

8.0

6.0

4.0

2.0

0.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Equity Non-Equity
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Presentation Outline
❑Options Defined
❑Flexibility of Options
❑Calls and Puts
❑Basic Strategies
❑Exercise and Assignment

Q&A

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Options Defined

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Defining an Option
❑Options are contracts that give:
❑The buyer the right to buy or sell an underlying asset
❑The seller the obligation to buy or sell an underlying asset

❑At a specified price (strike price),

❑Prior to the expiration of the
contract (expiration date)

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Why Options?
❑Options give you more ways to implement your market
research
❑Options make it possible to target a variety of investment
objectives:

❑Risk Reduction
❑Income Generation
❑Stock Acquisition
❑Speculation

❑Options offer FLEXIBILITY!

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Long Stock vs. Short Stock
In a world without options, stock investors have limited choices

Profit Profit

Stock Stock

Buy Price Sell Price

Loss Loss

Long Stock Short Stock

(Bullish) (Bearish)
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Flexibility
With options, these are some of the available choices

Long Call Short Call Long Put Short Put Long Short
Straddle Straddle

Long Short Long Call Short Call Long Put Short Put
Strangle Strangle Spread Spread Spread Spread

Ratio Call Ratio Put Call Volatility Put Volatility Long Split- Collar
Spread Spread Spread Spread Strike Synthetic
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Calls and Puts

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Calls and Puts
❑There are two “types” of options:
❑Calls
❑Puts

❑For equity or ETF options, the

underlying asset to be purchased or
sold:
❑100 shares of underlying stock or
❑100 shares of an ETF (Exchange
Traded Fund)

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Equity Call Options
❑An equity call buyer:
❑Owns the right to buy underlying stock/ETF
❑Bullish on underlying
❑Needs stock movement > time decay

❑An equity call seller:

❑Has the obligation to sell underlying stock/ETF
❑Likely already owns shares

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Equity Put Options
❑An equity put buyer:
❑Owns the right to sell underlying stock/ETF
❑If speculating, is bearish on underlying
❑If shares are already owned, is buying protection

❑An equity put seller:

❑Has the obligation to buy underlying stock/ ETF
❑Generate income while waiting for share price drop
❑Small profit if stock rallies

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Buyers and Sellers (Rights and Obligations)
Option contracts give…

Calls Puts ❑ 100 shares of the

Buyer/Holder Right Right underlying
(Long) to buy to sell ❑ at the strike price
Seller/Writer Obligation Obligation ❑ any time before
(Short) to sell to buy expiration

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Basic Strategies

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Selecting a Strike Price and Expiration
Starts with a forecast:
❑ Will shares move up, down, or stay the
same?
❑ How high/low will they go?

Followed by an expiry:
❑ How long will it take the forecast to occur?
❑ “Time is money”

Select a strategy:
❑ Buy calls/buy puts or something else?
❑ Exit strategy: Take profits/cut losses

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Call Buying Example
Buy 140 strike call at $3.60
+
Break-even at Expiration:
Long Stock Strike Price + Call Premium
at $140.00
Paid
$140.00 + $3.60 = $143.60
0
135 140 145
Maximum Loss:
$3.60 Call Premium Paid
-$360 $360.00 Total
BEP $143.60

Does not include commissions, fees, margin interest or taxes.

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Covered Call Example
Own 100 shares XYZ at $75.00 Break-even at Expiration:
Sell 1 XYZ 80 call at $1.80 Stock Price Paid –
Call Premium Received
+
$75.00 – $1.80 = $73.20
+680 BEP $73.20

Maximum Profit if Assigned:

0
70 80 90 Effective Stock Sale Price –
• Stock Price Paid
Long stock at $75.00
– ($80.00 + $1.80) – $75.00 = $6.80
• $680.00 Total
Does not include commissions, fees, margin interest or taxes.

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Put Buying Example (Speculate)
Buy 200 strike put at $4.00

+ Break-even at Expiration:
Short Stock at Strike Price – Put Premium
$200.00
Paid
$200.00 – $4.00 = $196.00
0 Maximum Loss:
190 200 210 $4.00 Put Premium Paid
-$400
BEP $196.00
$400.00 Total

Does not include commissions, fees, margin interest or taxes.

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Protective Put Example
Long Stock at $120
Buy 100 strike put at $2.00
(180 Days until expiration, 25% Volatility) Break-even at Expiration:
+ Initial Share Price + Put
Long Stock Premium Paid
at $120.00 $120.00 + $2.00 = $122.00
Maximum Loss:
0 Difference between strikes +
100 140
Put Premium Paid
120
BEP $122.00 $120.00 - $100.00 + $2.00 =
-$2,200 $2,200.00
–

Does not include commissions, fees, margin interest or taxes.

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Cash Secured Put Example
Stock XYZ at $146
Sell 140 put at $2.00
(30 Days until expiration, 25% Volatility)

Break-even at expiration
B/E: $138
Strike price – Premium Max. Profit:
$2.00*
$140 - $2.00 = $138.00 120 130 140 150 160

* Max profit of $2.00 does not take Current

into account resulting long stock Share Price
position should assignment occur

Does not include commissions, fees, margin interest or taxes.

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Exercise and Assignment

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Exercise: Buy or Sell Underlying Stock
❑The option buyer has the right:
❑to buy (for a call) or sell (for a put)
❑100 shares of underlying stock/ETF
❑at the strike price per share
❑if he/she exercises a long contract
❑To exercise, the buyer issues an exercise notice
to his/her brokerage firm (or Auto-ex)
❑Only option buyers may exercise an options contract

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Exercise Process

Clearing Member Firm Trading/Brokerage Firm

Investor/Trader

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Assignment: Buy or Sell Underlying Stock

❑The option seller has the obligation:

❑to sell (for a call) or buy (for a put)
❑100 shares of underlying stock/ETF
❑at the strike price per share
❑if he/she is assigned an exercise notice
❑Assignment notice is received from seller’s brokerage firm
❑Only option sellers may be assigned on an options contract

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Assignment Process

Clearing Member Firms Trading/Brokerage Firms

Investors/Traders
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Key Takeaways
❑ Options are contracts that confer rights and
obligations upon buyers and sellers
❑ The two types of options are calls and puts
❑ Call buyers have the right to purchase stock at the
strike price anytime before the contract expires
❑ Call sellers are obligated to sell stock at the strike
price anytime before the contract expires
❑ Put buyers have the right to sell stock at the strike
price anytime before the contract expires
❑ Put sellers are obligated to buy stock at the strike
price anytime before the contract expires
❑ Rights and obligations are realized through the
exercise and assignment process
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For More Information
www.OptionsEducation.org

Investor Education: options@theocc.com

OIC YouTube Channel

LIKE us on Facebook

Follow us on Twitter @Options_Edu

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