Quick Answer
A call is the right to buy 100 shares at the strike; a put is the right to sell them. The buyer holds the rights and pays the premium; the writer accepts the obligation and collects it. The Options Clearing Corporation (OCC) issues and guarantees every contract, and premium equals intrinsic plus time value.
The whole unit on one sheet: rights versus obligations, pricing and adjustments, the guarantor, and the limits and account rules.
What Rights and Obligations Do Calls and Puts Carry?
- Call: buyer has the right to buy 100 shares at the strike; writer has the obligation to sell if assigned. Call buyer is bullish; call writer is bearish to neutral.
- Put: buyer has the right to sell 100 shares at the strike; writer has the obligation to buy if assigned. Put buyer is bearish; put writer is bullish to neutral.
- Rights belong to the buyer; obligations to the seller. The buyer always pays the premium; the seller always receives it.
- Each contract covers 100 shares. The only negotiated term is the premium; the exchange standardizes everything else, making options fungible.
Which One-Liners Win Points?
- OCC = issuer AND guarantor of every listed option. It interposes itself as buyer to every seller and seller to every buyer, eliminating counterparty risk.
- Exercise is normally the holder's choice; assignment is involuntary and random. The OCC assigns randomly to a member firm, which assigns to a customer by random selection or first-in, first-out (FIFO). On expiration day, Exercise-by-Exception automatically exercises standardized equity options in the money by a specified amount, absent a timely Contrary Exercise Advice.
- Premium = Intrinsic Value + Time Value. Intrinsic value can never be negative (floor is zero). Time value is highest at the money and erodes as expiration nears (time decay, or theta); at expiration time value is zero.
- Opening transactions raise open interest; closing transactions lower it, only when BOTH sides open or close; a contract just changing hands leaves it unchanged.
- Equity options settle by physical delivery of stock; index options settle in cash.
Which Numbers Matter Most?
| Item | Value |
|---|---|
| Standard equity contract size | 100 shares |
| Index / yield-based contract multiplier | $100 standard; yield-based series may vary |
| Foreign currency contract size | 10,000 units standard (Japanese yen: 1,000,000); market-set |
| Exercise limit window | 5 consecutive business days (generally equal to position limits) |
| Position limit tiers | 25,000 / 50,000 / 75,000 / 200,000 / 250,000 contracts |
| Standard expiration | Third Friday of the expiration month |
| LEAPS expiration | Standard equity LEAPS: third Friday of January, up to about 3 years (cited as 39 months) out |
| Signed options agreement return | within 15 days of account approval |
| Pre-ODD communications filing | at least 10 calendar days before use |
| Yield-based strike conversion | strike of 35 = 3.5% yield (decimal one place left) |
What Is the Memory Aid for Call Up, Put Down?
Call up, put down: intrinsic value rises as the stock moves up (call) or down (put) through the strike. Same shorthand for breakeven: call = strike + premium; put = strike - premium.
What Is Moneyness?
- In the money (ITM): call above strike, put below strike. Only ITM carries intrinsic value.
- At the money (ATM): market price equals strike; maximum time value.
- Out of the money (OTM): call below strike, put above strike. Intrinsic value is zero; premium is entirely time value.
Which Gotchas Trip Students Up?
- Premiums are quoted per share, not per contract. A call trading at 4 costs $400 (4 x 100 shares).
- Ordinary cash dividends and ordinary stock dividends do NOT adjust contracts. Only non-ordinary stock dividends and stock splits trigger adjustments.
- Early exercise of a call is almost always dividend capture. It happens the day before the ex-dividend date on a deep-ITM call near expiration whose remaining time value is less than the dividend.
- Position limits aggregate the same side: long calls + short puts (bullish), long puts + short calls (bearish).
- American exercises any business day up to expiration; European only at expiration (a style, not geography). Equity options are American; broad-based index, foreign currency, and yield-based options are European. Foreign currency typically settles physically (a minority cash-settled); yield-based settles in cash and moves with yields, so a long yield-based call profits when rates rise.
- LEAPS are ordinary options with a longer life, cleared by the OCC under the same rules; no dividends or voting rights.
- Account approval sequence: gather financial and background information, deliver the OCC Options Disclosure Document (ODD) at or before approval (a bare internet address is not delivery, only permitted pre-ODD contact information), and have the branch manager, an ROP, or a Limited Principal-GSSS approve in writing. Miss the 15-day agreement return and the account is restricted to closing transactions only (not frozen, not liquidated).
- A non-ROP branch manager's initial approval must reach a qualified principal within 10 business days. Equity-option exercise decisions are due by 5:30 p.m. ET (Contrary Exercise Advice by 7:30 p.m. ET).
One-Breath Recap
A call is the right to buy and a put is the right to sell 100 shares at the strike, with rights on the buyer and obligations on the writer, all issued and guaranteed by the Options Clearing Corporation. Premium splits into intrinsic value (never negative) plus time value (highest at the money, gone at expiration), and moneyness flips between calls and puts. Lock in the position and exercise limits, the American-versus-European styles, the dividend-driven early-exercise setup, and the account-approval steps (options disclosure document at or before approval, signed agreement back within 15 days) and this unit answers itself.
Need more than the recap? Read the full Options Fundamentals unit.