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What are the basics of an option contract?

The four fundamental characteristics that make up an option contract are action, type, expiration, and strike price.

Key terms

  • Action: whether the contract is bought (buy) or sold (sell). Buying an option gives you the right to exercise; selling an option creates an obligation if assigned
  • Type: indicates whether the option is a Call (right to buy the underlying) or a Put (right to sell the underlying)
  • Expiration: the date the option contract ceases to exist; after this date the contract is either exercised, assigned, or expires worthless
  • Strike price: the agreed upon price at which the underlying asset can be bought (call) or sold (put) if the option is exercised

How these fields affect a trade

  • Choosing buy vs sell determines whether you hold a right (long) or an obligation (short), which affects risk and margin
  • Selecting Call vs Put defines the directional expectation required for a position to gain value
  • Expiration affects time value (Theta) and exercise/assignment risk; shorter expirations accelerate time decay
  • Strike price determines moneyness (in-the-money, at-the-money, out-of-the-money) and is central to payoff shape and breakeven points

Related Questions

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What are options Greeks?Options Greeks are sensitivity measures that describe how an option contract's price responds to changes in market conditions. OptiView displays Delta, Theta, Gamma, and Vega for each contract in the option chain and calculates net Greeks across all legs in the strategy overview panel.
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What happens if I hold an option until expiration?Holding an option until expiration means the contract will either expire worthless, be exercised, or lead to assignment, depending on whether the option is in the money and on your broker’s rules.