Lesson film
Watch this lesson as a short film
Two kinds of options, two sides to each — and the exact spot where the wheel sits.
What you'll learn
- Tell calls and puts apart in plain English
- Describe what each of the four basic positions obligates you to do
- See exactly where the wheel sits: selling puts, then selling calls
There are only two kinds of options, and once you have them straight, everything else clicks into place. A call is the right to buy shares at the strike. A put is the right to sell shares at the strike. That single word — buy or sell — is the whole difference.
Each option has two sides
Every contract has a buyer (who is long) and a seller (who is short). Cross call/put with long/short and you get exactly four basic positions. The buyer always pays the premium and holds a right; the seller always collects the premium and takes on an obligation.
| Position | Who pays? | What you can be forced to do |
|---|---|---|
| Long call | You pay | Nothing — you choose whether to buy |
| Short call | You collect | Sell 100 shares at the strike if assigned |
| Long put | You pay | Nothing — you choose whether to sell |
| Short put | You collect | Buy 100 shares at the strike if assigned |
What would you do?
Your call
You'd be happy to own KO at 57.50 — about 4 percent below today's 60 — and you want to be paid while you wait, not pay. Which position matches?
So when you run the wheel on a stock like KO (Coca-Cola), you start by selling a put below the current price. You collect premium for the promise to buy KO at that strike. If the stock dips to your strike, you buy the shares — and then you flip to selling calls above your cost, collecting premium again for the promise to sell. Income on the way in, income on the way out.
Put in order
Put the wheel's moves in order, starting from cash.
- Sell a put below the current price — collect premium
- Called away: sell the 100 shares at the call strike
- Back to cash — sell a new put
- Assigned: buy 100 shares at the put strike
- Sell a call above your cost — collect premium again
Fig. 1Interactive
Key terms in this lesson
Each term has its own glossary page with a picture and related terms.
- CallGlossary entry
- An option whose owner can BUY 100 shares at the strike price. Calls gain value when the stock rises.
- PutGlossary entry
- An option whose owner can SELL 100 shares at the strike price. Puts gain value when the stock falls.
Key takeaways
- A call is the right to buy; a put is the right to sell.
- Buyers (long) pay premium and hold a right; sellers (short) collect premium and owe an obligation.
- The wheel sells puts to get paid to buy low, then sells calls to get paid to sell high.
Checkpoint
Knowledge check
Answer to lock in what you just learned.
Which option gives its owner the right to SELL 100 shares at the strike?
When you SELL a put and are assigned, what happens?
In the wheel strategy, which two positions do you take?
Keep going
7 more chapters, from your first put to an expert playbook
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Educational content only — not financial advice. Options involve risk of loss and are not suitable for every investor.