Lesson film
Watch this lesson as a short film
One contract, 100 shares, four blanks to fill — and why the seller gets paid first.
What you'll learn
- Define an option contract in one plain sentence
- Explain why one contract controls 100 shares
- Name the four things every option specifies
Forget the intimidating jargon for a moment. An option is simply a contract between two people about a stock. One side pays a little money now for the right to buy or sell shares later at a price locked in today. The other side — the seller — collects that money and takes on the obligation. In the wheel, you are almost always the seller.
Why 100 shares?
Every standard U.S. equity option controls exactly 100 shares. So a premium quoted at 1.20 is per share — the actual cash that changes hands is 1.20 x 100 = 120 dollars per contract. Building this x100 habit now saves a lot of confusion later.
Make a guess
A put is quoted at a premium of 2.35. You sell 3 contracts. How much cash do you collect in total?
The four things every option specifies
| Part | What it means | Example |
|---|---|---|
| Underlying | Which stock | AAPL |
| Type | Call or put | Put |
| Strike | The locked-in price | 190 dollars |
| Expiration | The deadline | May 17 |
Put those together — a May 17 AAPL 190 put — and you have described one specific contract that thousands of traders can buy and sell.
What would you do?
Your call
Your broker's order ticket reads: Sell 1 · KO · May 17 · 60 put · 0.90. Before you press the button, what exactly are you agreeing to?
Fig. 1Interactive
1 · Sell a cash-secured put
You promise to buy 100 shares at a strike you choose and set the cash aside. You're paid a premium right away.
Next: If it expires above the strike, you simply sell another.
Key takeaways
- An option is a contract to trade 100 shares at a set strike before a set expiration.
- One contract = 100 shares, so multiply every per-share premium by 100.
- Every option is defined by four things: underlying, type, strike and expiration.
Checkpoint
Knowledge check
Answer to lock in what you just learned.
How many shares does one standard equity option contract control?
A put is quoted at a premium of 0.85. How much cash does the seller collect for one contract?
Which of these is NOT one of the four things every option specifies?
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.