What an options contract is

An option is a standardized contract on 100 shares of a stock. The buyer pays for a right: to buy at a fixed price with a call, to sell at a fixed price with a put. The seller takes the money and takes on the matching obligation, which lasts until the contract expires or is closed. Those two sides are not mirror images, and the difference is the whole subject.

Almost every explanation of this starts with the buyer. That is backwards for anyone who ends up selling premium, because the buyer's side is the easy one: you pay, you have a right, your loss stops at what you paid. The seller's side is where the money and the trouble both live.

The definitions, from the people who issue them

OCC / Options Industry Council, Options Basics FAQ puts it plainly. "A call is an option contract that gives the owner the right to buy the underlying stock at a specified price (its strike price) for a certain, fixed period (until expiration)." And: "A put is an option contract that gives the owner the right to sell the underlying stock at a specified price (its strike price) for a certain, fixed period (until expiration)."

Read who those sentences are about. The owner. Both definitions describe a right held by somebody else. Your position as a seller is the other half of each one, and it does not appear in either sentence, which is roughly how much of the educational material out there is written.

Four terms and nothing else

A listed equity option is defined by four things, and they are fixed by the exchange rather than negotiated between you and a counterparty.

• The underlying. Which stock. DKNG, in every example on this page.
• The type. Call or put.
• The strike. The fixed price in the contract. $42, say.
• The expiration. The date the right runs out. September 19, 45 days from the snapshot these pages run on.

That is the entire contract. There is no negotiation, no counterparty credit check, no custom terms. You are not selling to a person. You are selling into a pool, and OCC stands between you and whoever ends up on the other side, which is why you can sell an option at 10am and never think about who bought it.

The 100 that changes every number

One contract covers 100 shares. Every quoted price is per share, so multiply by 100 to get money.

DKNG is at $38.40. The September 19 $42 call is quoted $0.71 bid, $0.76 ask.

• Sell one at the bid and $71 lands in your account. Not 71 cents.
• The obligation you took on covers 100 shares, currently worth $3,840.
• If DKNG finishes at $47, you deliver 100 shares at $42 into a $47 market. That is $500 of value handed over, against $71 collected.

The multiplier is the single most common way new sellers get their size wrong. Ten contracts is not ten shares of exposure. It is a thousand, or $38,400 of DKNG, from a position that showed up in the account as $710 of credit.

Right against obligation, priced

Here is the asymmetry in one table, on the same $42 call.

The buyer's worst case is on the first line and it never gets worse. Yours is on the last line and that line does not stop. Nothing about the contract caps it. A short call on a stock that gets taken over at a premium is the classic version of this and it happens to somebody every quarter.

Which is why the two strategies this site is built around never sell a bare call. A covered call owns the 100 shares first, so delivery is already funded. A cash-secured put parks the strike times 100 in cash, so the purchase is already funded. Both convert an open-ended obligation into one you can actually meet.

What you cannot do

Decline. There is no negotiation at expiry and no phone call. If somebody exercises against you, your broker moves the shares and the cash, and you find out afterwards. The assignment page walks the timeline hour by hour.

You do have one out before then: buy the same contract back and the position is gone. That is a market transaction at whatever the option costs at that moment, which may be far more than you sold it for. Closing is always available. Refusing is not.

Where the price comes from

The $42 call is worth $0.73 at the mid, and every cent of that is the market's price for a chance. DKNG has to be above $42 at expiry for the contract to pay the buyer anything, and on this chain the model puts that at 22.9 percent. You are being paid $73 to take a 22.9 percent chance of a bill whose size you do not know yet.

Five inputs decide it: the stock price, the strike, the time left, the interest rate, and how much the stock is expected to move. That last one is doing most of the work and it has a whole series of its own. The model that combines them is fifty years old and every screen you look at still runs it.

OptionsKing scores every candidate strike on a deterministic 0 to 100 scale, blends that score with the return on the capital the trade ties up, and shows you the highest-ranked handful. There is no minimum score. How it works covers what the ranking does and does not tell you.

Questions people actually ask

Sources

• OCC / Options Industry Council, Options Basics FAQ
• OCC / Options Industry Council, Options Exercise FAQ
• OCC, Characteristics and Risks of Standardized Options

Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.

Keep reading

• All four positions, with the payoff of each
• Which side to sell, and why they are not symmetric
• What the premium is actually compensating

Do the math on your own trade

• Covered call calculator premium, break-even, static and if-called return, annualized.
• Cash-secured put calculator credit, break-even, return on secured capital, annualized.
• Black-Scholes calculator price and Greeks from five inputs.

Every price in this article is an illustrative worked example, not a quote. Read Options basics for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.