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What Is an Option? A Real S&P 500 Call Example

One contract, five words and a real S&P 500 call. What the buyer gets, what the seller carries, and where the 7,750 call breaks even.

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On this page
  1. In writing
  2. One contract, five words
  3. The five words
  4. The rights priced on a real chain
  5. The takeaway
  6. Up next

What this one covers

  • The buyer gets the right, not the obligation, to buy or sell at a set price by a set date
  • A call is the right to buy, a put is the right to sell, the set price is the strike, the date is the expiry and the cost is the premium
  • The S&P 500 7,750 call expiring September 18 cost 72.70 at the close, so it breaks even at 7,822.70, about 1% higher
  • Below the strike the call expires worthless, so the buyer loses the premium and no more
  • A seller collects the premium and carries the obligation

The same thing, in writing

One contract, five words

An option comes down to one contract and five words, with a real example at the end. The buyer gets the right, not the obligation, to buy or sell at a set price by a set date.

The five words

  • A call is the right to buy.
  • A put is the right to sell.
  • The set price is the strike.
  • The date is the expiry.
  • The cost of the right is the premium.

The buyer can walk away. The seller was paid and carries the obligation.

The rights priced on a real chain

The Terminal's options chain shows those rights priced on the S&P 500, with calls on the left and puts on the right. The 7,750 call expiring September 18 expires worthless below the strike, so the loss stops at the premium. Above the strike, every point counts. That right cost 72.70 at Thursday's close, so it breaks even at 7,822.70, about 1% higher.

The takeaway

A buyer risks the premium and keeps the upside. A seller collects the premium and carries the obligation. The chain prices every one of those rights.

Topics

  • what is an option
  • call option
  • strike price
  • breakeven
  • vol school
  • options basics
By Ryan Silk & Lawrence Polatchek Last reviewed . Methodology is published in full.

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Where this one
leads next.

The rest of the series, and the written guides behind what you just watched.

1:02 Shorts What Is Delta? Options Delta Explained with NVDA Delta is the change in an option's price for a $1 move in the stock. A one minute lesson with a real Nvidia call, and why the number cuts both ways. 1:09 Shorts Where the Edge Is: Implied vs Historical Vol Stock picking bets against the efficient market hypothesis. The measurable edge is the gap between implied and historical volatility. 1:34 Shorts How Calls and Puts Make Money: An AAPL Example Apple at 200, a 200 call and a 200 put bought for 5 each. One expiry at 220 and one at 180 show how each side earns the same 15.
Learn What Are OptionsThe written guide, with the worked numbers. Learn What Is A Call OptionThe written guide, with the worked numbers. Glossary Strike PriceThe term, defined in one paragraph. Glossary Breakeven PointThe term, defined in one paragraph. Learn Options PremiumThe written guide, with the worked numbers. All videosEvery walkthrough and clip, sorted by topic. Learning centreEvery guide, ordered from first principles up.

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