An equity option gives its holder a right, not an obligation: a call lets the buyer purchase the underlying stock at a set strike price, a put lets the buyer sell it, and both must be exercised on or before expiration day. Each standard equity contract covers 100 shares. The buyer pays a non-refundable premium up front; if the option expires out-of-the-money, it expires worthless and the buyer loses that entire premium, illustrated by a $220 loss against a $70 strike price in an SEC investor bulletin. The seller, or writer, carries the opposite side: an obligation to buy or sell if the buyer exercises.
What Makes an Option a Right, Not an Obligation?
An equity option is a contract that gives its holder the right, but not the obligation, to buy or sell shares of an underlying stock at a specified strike price on or before expiration dayCITE:E1. The Options Industry Council (OCC) defines a call as conveying the right to buy the underlying security, and a put as conveying the right to sell it, both at the stated strike price and both exercisable no later than the given expiration dateCITE:E1.
How Do Call and Put Rights Differ?
A call option gives its buyer the right to buy shares of the underlying stock at the strike price for a specified period of timeCITE:E3. A put option gives its buyer the right to sell shares of the underlying stock at the strike price for a specified period of timeCITE:E4. The U.S. Securities and Exchange Commission's Investor.gov set out both definitions in an investor bulletin published March 18, 2015, describing the buyer's right in each contract type in identical terms apart from the direction of the trade — buy for a call, sell for a putCITE:E3CITE:E4.
What Does One Options Contract Actually Cover?
One equity options contract usually represents 100 shares of the underlying stock, according to the OCCCITE:E2. That fixed multiplier means a single call or put contract is priced and traded against a 100-share block rather than against one share at a timeCITE:E2.
What Is the Premium, and Who Pays It?
The premium is paid up front by the option buyer to the seller of the contract, and it is non-refundable, per Investor.govCITE:E5. That structure fixes the buyer's cost at the moment the contract is opened, while the seller receives that amount regardless of what the underlying stock does afterwardCITE:E5.
What Happens to a Buyer When an Option Expires Out-of-the-Money?
An option that finishes out-of-the-money at expiration expires worthless, and the buyer loses the entire premium already paidCITE:E6. Investor.gov illustrates this with a call held against a $70 strike price: when the underlying closed below that level, the option was out-of-the-money and expired worthless, and the buyer lost the $220 premium originally paid for the contractCITE:E6.
What Obligation Does the Option Seller (Writer) Carry?
The seller, or writer, of an option accepts the obligation to buy or sell the underlying stock if the buyer exercises that right, according to FINRACITE:E7. Unlike the buyer, the writer does not choose whether the transaction happens — exercise is triggered by the buyer's decision, and the writer's obligation follows from itCITE:E7.
How Do Buyer and Seller Positions Compare?
The buyer holds a right and the seller holds an obligation, and every other term of the contract follows from that splitCITE:E1. A call buyer's right is to buy at the strike price, and a put buyer's right is to sell at the strike price, both within the contract periodCITE:E3CITE:E4. The buyer pays a non-refundable premium up front to obtain that rightCITE:E5, while the seller, or writer, accepts the obligation to buy or sell if the buyer exercisesCITE:E7.
| Figure | Value | Source |
|---|
| Shares per standard equity options contract | 100 shares | CITE:E2 |
| Example strike price in the SEC's worked illustration | $70 | CITE:E6 |
| Premium lost when that example option expired worthless | $220 | CITE:E6 |
What this means: Across the OCC, SEC Investor.gov, and FINRA descriptions, the same asymmetry holds: the buyer's obligation-free right is bought with a fixed, non-refundable premium, and the outer bound of the buyer's loss is that premium — $220 in Investor.gov's own $70-strike exampleCITE:E5CITE:E6. The seller's position is the mirror image, an obligation that activates only if the buyer chooses to exerciseCITE:E7, standardized in 100-share blocks per contractCITE:E2.