Options

Futures bind both sides equally. Options do not, and the inequality is the whole subject.

The definition

SEBI:

An options contract refers to the financial instrument which gives the buyer of the option the right but not the obligation to exercise the option at a pre-determined date and price.

Right but not obligation, and only for the buyer. The seller has the matching obligation and no choice.

Calls and puts

SEBI again, and the definitions are one line each:

A call option gives one the right to buy the underlying security.

A put option gives one the right to sell the underlying security.

So four positions exist, not two, and they are genuinely different things:

Position	What you have	What you want
Buy a call	The right to buy at the strike	The price to rise
Sell a call	The obligation to sell if asked	The price not to rise
Buy a put	The right to sell at the strike	The price to fall
Sell a put	The obligation to buy if asked	The price not to fall

The strike is the predetermined price in SEBI's definition. The premium is what the buyer pays for the right: "Investors are charged a premium when they buy an options contract."

The asymmetry

Here is the fact that matters more than any other in this subject.

The buyer pays the premium and can lose only the premium. If the option expires worthless, the money paid is gone and nothing further is owed. The loss is known on the day the trade is made.

The seller receives the premium and can lose far more than it. They are obliged to perform if the buyer exercises, and the amount depends on where the underlying ends up. For a sold call, there is no upper limit on how far the underlying can rise.

So the two sides of the same contract have completely different shapes of risk:

	Maximum gain	Maximum loss
Option buyer	Large, in principle unlimited for a call	The premium
Option seller	The premium	Large, in principle unlimited for a sold call

Read that table twice. The seller's best case is a small, capped amount, and their worst case is open-ended. Chapter 9 is about why people take that side anyway, and what it does to them when it goes wrong.

Why an option expires worthless so often

Being the buyer sounds strictly better — capped loss, large upside. It is not, and the reason is that you pay for it.

For a bought call to make money, the underlying must rise above the strike by more than the premium paid, before expiry. Three conditions at once: right direction, enough distance, and in time.

Get the direction right and the size wrong, and you lose. Get both right and the timing wrong, and you lose. The option expires and there is nothing left to hold.

This is the structural difference from a share. A share you were early on is still a share. An option you were early on is zero.

Moneyness

Three words that describe where an option stands relative to the underlying.

In the money. Exercising now would be worth something — a call whose strike is below the current price, or a put whose strike is above it.

At the money. Strike roughly at the current price.

Out of the money. Exercising now would be worthless. Most cheap options are here, which is why they are cheap, and a cheap option is cheap because it probably expires at zero.

The attraction of a far out-of-the-money option is that a small premium could multiply. The arithmetic behind the small premium is the market's estimate that it probably will not.

Premium is not price

A difference in vocabulary that reflects a difference in substance.

A share's price is what you pay for a lasting claim. An option's premium is what you pay for a temporary right that expires. Chapter 7 splits it into the part that is already worth something and the part that is paying for time — and shows the second part draining away every day whether the underlying moves or not.

What options are good for

Insurance. A put bought against shares you hold is a floor, and the premium is the cost of that floor. This is the honest use and chapter 8 works it through.

A defined-risk view. A buyer knows the maximum loss on the day of the trade, which is genuinely different from a future where the loss is open.

Income, with a tail. Selling options collects premium and is often described as income. It is income with an obligation attached, and chapter 9 is about what that obligation can cost.

The point

An option gives the buyer a right and the seller an obligation. A call is a right to buy; a put is a right to sell. The buyer's loss is capped at the premium and the seller's is not — and a bought option needs the right direction, enough distance and the right timing, or it expires at zero.