Forget the Textbooks, Let’s Talk Business
If you look it up on Wikipedia, it’ll tell you: “Options are a type of derivative financial instrument…” Stop right there. This definition does nothing but put you to sleep and won’t help you make money.
In the Silent Options world, options have only one definition: Options = A contract about the future.
It’s just like the “house deposit” or “car insurance” in your life. Understand these two things, and you understand options.
I. Core Concepts: What Exactly Are Call and Put?
Options are divided into two categories. Don’t try to memorize - let’s use scenarios:
1. Call Option - Like a “House Deposit”
Imagine you’ve found a house, currently priced at $1 million. You think it’ll rise to $1.5 million next year, but you don’t have enough money now. So, you pay the landlord a $10,000 deposit (premium) and sign a contract: “No matter how high the house price goes next year, I have the right to buy this house for $1 million.”
- Scenario A (Surge): Next year the house price rises to $1.5 million. You buy at $1 million, flip it for sale, and make $490,000 (minus deposit). This is being a Call buyer.
- Scenario B (Crash): Next year the house price drops to $800,000. Are you stupid? Of course you won’t buy at $1 million. You forfeit the deposit, losing $10,000.
2. Put Option - Like “Car Insurance”
You just bought a new car (holding stocks), afraid of a crash (stock price drop). So, you pay the insurance company a $10,000 premium and sign a contract: “No matter how badly the car is wrecked, I have the right to sell it to the insurance company at the original price.”
- Scenario A (Crash/Plunge): Car is wrecked and worth $0. Insurance company tearfully buys it at original price. You recovered your loss.
- Scenario B (Nothing/Rise): Nothing happened all year. Premium wasted, insurance company (seller) took your money.
II. Four Roles: Are You a “Gambler” or the “House”?
After understanding Call and Put, you still need to choose “which side to sit on”. This determines whether you lose or make money.
| Role | Action | Mentality | Win Rate | Real Identity |
|---|---|---|---|---|
| Long Call | Buy Call | Bet on surge | Low | Lottery buyer |
| Long Put | Buy Put | Bet on crash | Low | Insurance buyer |
| Short Call | Sell Call | Bet it won’t rise | High | Landlord collecting rent (Covered Call) |
| Short Put | Sell Put | Bet it won’t fall | High | Insurance company (CSP) |
Silent’s Advice: The most common mistake beginners make is always wanting to be “buyers” to win big with small bets. The expert’s secret lies in being “sellers” to collect premiums like insurance fees.
III. Reading the “Book of Heaven”: How to Read the Options Chain?
When you open your trading software (Futu/IBKR) and see that long string of code AAPL 240621 150.00 C, don’t panic. Break it down - it’s just one sentence:
- AAPL (underlying): This is a contract about Apple stock.
- 240621 (expiration): Contract expires on June 21, 2024. Becomes void after expiration.
- 150.00 (strike price): The trading price we agreed upon.
- C (type): This is a Call.
Translated to human language: “This is a contract that gives you the right to buy Apple stock at $150 before it expires on June 21, 2024.”
IV. Why Are Some Options Expensive and Others Cheap?
You might ask: “Why do some Apple options sell for $10 and others for $100?” Because option price (Premium) consists of two parts:
Price = Intrinsic Value + Time Value (Extrinsic/Time)
- Intrinsic Value: What it’s really worth.
- Like a “solid gold bar”. If stock price is $160, strike price $150, this contract contains $10 of real value.
- Time Value: What the dream is worth.
- Like “ice cream”. The farther from expiration, the bigger the dream, the more ice cream. But as time passes, ice cream melts (Theta Decay).
- As sellers, we profit from this “melting ice cream”.
V. Three “Survival Rules” for Beginners
Before you place an order, carve these three sentences on your monitor:
- Never Go Naked (No Naked Selling): Never sell options you can’t afford to lose. Selling Put requires cash (CSP), selling Call requires stocks (CC).
- Don’t Touch 0DTE: Don’t play options expiring today. That’s a gambler’s graveyard, volatility will kill your heart.
- Liquidity is Life: Only play big blue chips like Apple, Tesla, Nvidia. Don’t touch those unknown small caps, or you’ll find no one to take your position when you want to exit.
🚀 Ready to Start?
Congratulations, you’ve evolved from “a rookie who doesn’t even know the rules” to “a player who knows the rules.” But this is just the first step.
Knowing what Call/Put are won’t make you money; knowing “how to combine and use them” will.
- Want to know how to use Put for bottom-fishing?
- Want to know how to use Call to collect weekly rent?
👇 Head to our [Practical Video Course], I’ll be waiting for you there.