TL;DR — Options in 5 Minutes
A quick reference for options basics: what they are, how buying and selling works, expiration, and credit put spreads. Charts included.
1. What Is an Option?
An options contract gives you the right — but not the obligation — to buy or sell a stock at a specific price before a specific date.
Every option has four parts:
Anatomy of an Options Contract
Summary: Stock + strike price + expiration + premium. You can exercise or let it expire.
2. Calls & Puts
Call = right to buy at the strike price. Profits when the stock goes up. Put = right to sell at the strike price. Profits when the stock goes down.
Call vs. Put — Payoff at Expiration
3. Buying vs. Selling Contracts
When you buy an option, you pay premium and get the right to exercise. When you sell an option, you collect premium and take on the obligation to fulfill if the buyer exercises.
| Buying (Long) | Selling (Short) | |
|---|---|---|
| You pay or collect? | You pay the premium | You collect the premium |
| What you need | A big move in your favor | The stock to stay put (or move your way) |
| Time decay | Hurts you (value melts daily) | Helps you (you keep more premium) |
| Max profit | Theoretically unlimited (calls) | Limited to premium collected |
| Max loss | Limited to premium paid | Can be large (unless you use a spread!) |
How Money Flows Between Buyer & Seller
Most options expire worthless, so sellers collect premium more often than they pay out. The key is managing risk with strategies like spreads.
4. Expiration Dates
Every option has a hard deadline. After that date, the contract expires and becomes worthless if not exercised. The closer to expiration, the faster the option loses value — this is time decay (theta).
How Time Decay Eats Away at an Option's Value
Time Decay (Theta) — Interactive Chart
Buyers: Time decay hurts you. Sellers: Time decay helps you — you want the option to expire worthless so you keep the full premium.
Common Expiration Cycles
Weekly: Expire every Friday — fast, aggressive. Monthly: Third Friday of each month — more time, more forgiving. LEAPS: 1-2 years out — long-term bets. Most credit put spread traders (including us) prefer 30-45 day expirations for the ideal balance of premium and time decay.
5. Credit Put Spreads
A credit put spread (bull put spread) is two trades at once:
Sell a Put at a Higher Strike
You sell a put option closer to the current stock price. This is where you collect premium. You're betting the stock stays above this price.
e.g. Sell the $145 put for $3.00Buy a Put at a Lower Strike
You buy a put option further from the current stock price. This is your safety net — it caps your maximum loss.
e.g. Buy the $140 put for $1.50You Pocket the Difference
The premium you collected minus the premium you paid = your net credit. This is cash in your account on day one.
$3.00 − $1.50 = $1.50 net credit ($150 per contract)Credit Put Spread — Visual Breakdown (AAPL at $155)
Credit Put Spread — Profit / Loss at Expiration
Three Possible Outcomes
Stock Stays Above $145
Both puts expire worthless. You keep the entire $150 credit. Nothing else happens. This is the most common outcome when you pick solid stocks.
Stock Falls Between $140–$145
You give back some profit. Your loss is reduced by the credit you received. Breakeven is at $143.50 ($145 − $1.50 credit).
Stock Falls Below $140
Maximum loss kicks in: $350 per contract ($5 spread width − $1.50 credit = $3.50 × 100). The bought put protects you from any further loss.
Why it works: Defined risk, income on day one, time decay in your favor. You win if the stock stays above your short strike — it doesn't need to go up.
6. Putting It All Together
Here's the complete picture in one glance:
From Opening to Expiration — A Credit Put Spread Lifecycle
Options
Right (not obligation) to buy or sell a stock at a set price before a deadline.
Calls & Puts
Call = right to buy (profits when stock goes up). Put = right to sell (profits when stock goes down).
Buy vs. Sell
Buyers pay premium, need a big move. Sellers collect premium, profit from time decay.
Expiration
Every option has a deadline. Value decays faster as expiration approaches.
Credit Put Spreads
Sell a put, buy a cheaper put below it. Net credit upfront, capped risk. Win if stock stays above short strike.
Why It Works
Defined risk, income on day one, time decay in your favor. Stock doesn't need to go up.
Ready to Go Deeper?
This was the speed-run. For detailed breakdowns, interactive simulators, and advanced strategies, explore the full Knowledge Base. Start with What Are Options? for the complete foundation, or jump straight to Credit Put Spreads for our signature strategy deep-dive with a live P/L simulator.