Buyers, Sellers, Calls, and Puts
Every trade has two sides, and every option has two types. Mastering this grid is essential.
The Two Sides of a Trade
Just like any transaction, there is a Buyer and a Seller. Their goals are opposite.
Option BUYER
The Policy Holder
Pays Premium
You pay cash upfront for the contract.
Profits on Movement
You want the stock to move significantly in your direction.
Option SELLER
The Insurer
Receives Premium
You collect cash upfront immediately.
Profits on Stability
You want the stock to stay still or move away from your strike.
Calls vs. Puts
The two types of contracts. Buying a Call is betting UP. Buying a Put is betting DOWN. But selling minimizes that simplicity.
CALL Option
*Usually bullish, unless you short it.
If You Buy It (Long Call)
You have the RIGHT to BUY shares. You make money if the stock goes UP.
If You Sell It (Short Call)
You have the OBLIGATION to SELL shares. You make money if the stock stays flat or goes DOWN.
PUT Option
*Usually bearish, unless you short it (like we do).
If You Buy It (Long Put)
You have the RIGHT to SELL shares. You make money if the stock goes DOWN.
If You Sell It (Short Put)
You have the OBLIGATION to BUY shares. You make money if the stock stays flat or goes UP.