Call or Put? Learn the Basics of Options Investing
July 25, 2026
Financial Literacy · Options Investing 101
Investing Basics: Understanding the Fundamentals of Options
This is the second article in our “Financial Literacy · Derivatives Basics” series. If you’d like to brush up on futures first, we recommend reading Understanding the Fundamentals of Futures before this one.
In the last installment, we saw that futures are “obligation” contracts — a promise, made today, to buy or sell at a set price at a future date. But there’s another product that’s constantly mentioned alongside futures: options. Options might look similar to futures, but instead of an “obligation,” they’re a trade in “rights.” That single difference completely changes the position of the buyer versus the seller. In this article, we’ll walk through what options are, how they’re actually traded, and exactly why buyers and sellers end up playing such different games.
An option is similar to a futures contract, but with one crucial difference. A futures contract is “an obligation to trade exactly as agreed.” With an option, what you’re buying is “the right to buy or sell at a set price.” Because it’s a right, not an obligation, you simply don’t have to exercise it if it’s not in your favor.
2Call options and put options
Type
Meaning
Analogy
Call option
The right to “buy” at a set price
A coupon that lets you buy at this price within a month
Put option
The right to “sell” at a set price
Insurance that lets you sell at a set price even if the price drops
3The concept of the premium
Acquiring this right isn’t free — you have to pay for it. That price is called the premium. Think of it as the money you spend to buy the coupon. If the price doesn’t move in your favor, you simply lose the premium and don’t exercise the right.
🇰🇷 Korea
KOSPI200 options are the flagship product, and individual investors can trade them on the Korea Exchange.
🇺🇸 United States
Options on individual stocks like Apple and Tesla trade actively, with the Chicago Board Options Exchange (CBOE) as the flagship market.
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Key Options Terminology
1Strike price
Options trade against a benchmark price called the strike price. For example, a call option with a strike of 1,120 is “the right to buy the index at 1,120.” Several strike prices for the same option trade at once, spaced closely together — for KOSPI200 options, you might see strikes of 1,100, 1,110, 1,120, and 1,130 all listed simultaneously.
2Expiration date
Like futures, options have a set expiration date. But there’s a key difference from futures: futures expire quarterly (March, June, September, December), while options expire much more frequently.
Futures and options have different expiration cycles
KOSPI200 futures expire on the second Thursday of March, June, September, and December, but KOSPI200 options expire on the second Thursday of every single month. In other words, it’s worth remembering that options expire far more often than futures.
These terms describe whether exercising the option right now would be profitable or not, based on comparing the current index level to the strike price.
Term
For a call option
Meaning
In-the-money (ITM)
Index > strike price
Exercising right now would be profitable
At-the-money (ATM)
Index ≈ strike price
The index and strike price are roughly equal
Out-of-the-money (OTM)
Index < strike price
Exercising right now would actually be a loss
For a put option, it’s the reverse: it’s in-the-money when the index is below the strike price, and out-of-the-money when it’s above.
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Buying and Selling: Two Completely Different Positions
Buying an option — holding only a right
You pay a premium and hold only a right. If the price moves in your favor, you exercise the right and profit; if it moves against you, you simply let the right expire. Even in the worst case, you only lose the premium you paid — that’s the whole downside.
Selling an option — bearing an obligation
In exchange for receiving the premium, you take on an obligation to comply if the buyer decides to exercise. For example, a call option seller must sell at the agreed price the moment the buyer says “I’ll buy at that price.” Because of this, sellers have to post margin, just like in futures.
1Why the huge difference?
It comes down to options being an inherently asymmetric product — a “right.” Buyers only exercise when it’s favorable, so their risk is capped at the premium. Sellers, on the other hand, must comply the instant the buyer chooses to exercise, so they collect a premium as compensation for shouldering that much larger risk.
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How Are Options Actually Traded?
1Buy orders and sell orders
Options trading starts with choosing your desired strike price and expiration, then placing an order to buy or sell a call or a put. Buyers only need to pay the premium, while sellers must post margin. You can close out your position through an offsetting trade at any point before expiration.
2If you want to trade in Korea
For individuals trading options in Korea, the same requirements as futures apply.
Opening a derivatives account — this must be separate from a regular stock trading account.
Completing prior education — you must take and complete a mandatory training course.
Minimum deposit — you must deposit a set minimum amount in advance.
Selling options in particular carries margin requirements and margin-call risk, so the barrier to entry is similar to that of futures.
3Getting a feel for it with a worked example
Say you buy a KOSPI200 call option with a strike price of 1,120 for a premium of 20 points (₩5,000,000 at the ₩250,000 multiplier).
Scenario
Outcome
Index at 1,150 at expiration (ITM)
Exercise the right → 30-point gain − 20-point premium = +10 points (approx. ₩2,500,000 profit)
Index at 1,100 at expiration (OTM)
Let the right expire → lose only the 20-point premium (loss capped at approx. ₩5,000,000)
For buyers, the loss is always capped at exactly the premium paid — no more.
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How Is an Option’s Premium Determined?
1What is intrinsic value
Intrinsic value is “the actual profit you’d get if you exercised the option right now.” For a call option, it’s calculated as “current index level − strike price.” For example, if the index is at 1,140 and the strike is 1,120, the call option has an intrinsic value of 20 points. If the option is out-of-the-money, its intrinsic value is 0.
2What is time value
Beyond intrinsic value, the premium also includes an expectation of “the chance that the price will move favorably during the time remaining until expiration.” This is called time value.
Premium = intrinsic value + time value
Index 1,140 / strike 1,120 call option
Intrinsic value 20 + time value 5=Premium of 25 points
Time value shrinks progressively as expiration approaches, hitting zero on the expiration date itself. This is called “time decay.”
3How volatility affects the premium
The more the price is expected to swing (i.e., the higher the volatility), the greater the chance the option will end up favorable to exercise — so time value and the premium both rise together. Conversely, if the market is expected to stay calm, the premium tends to be lower.
🇰🇷 Korea
KOSPI200 option premiums tend to move closely with Korea’s own volatility index, the V-KOSPI.
🇺🇸 United States
The VIX, the volatility index for S&P 500 options, is widely used as the go-to gauge for the direction of option premiums.
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Call Option Payoffs (Buying vs. Selling)
Let’s continue with the earlier example (strike 1,120, premium 20 points) and compare buying and selling side by side.
Item
Buying the call
Selling the call
Premium
Pay 20 points (₩5,000,000)
Receive 20 points (₩5,000,000)
If the index is at 1,150
+10-point gain (approx. ₩2,500,000)
−10-point loss (approx. ₩2,500,000)
If the index is at 1,100
Lose the full premium (approx. ₩5,000,000)
Keep the full premium (approx. ₩5,000,000)
Maximum loss
Capped at the premium paid (₩5,000,000)
Theoretically unlimited
If the index climbs to 1,200, the seller loses 80 points − 20 points (the premium received) = 60 points (approx. ₩15,000,000). The higher the index rises, the larger the seller’s loss grows — with theoretically no ceiling.
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Put Option Payoffs (Buying vs. Selling)
Say you trade a put option with a strike of 1,120 for a premium of 15 points (approx. ₩3,750,000), and let’s compare buying and selling side by side.
Item
Buying the put
Selling the put
Premium
Pay 15 points (₩3,750,000)
Receive 15 points (₩3,750,000)
If the index is at 1,080
+25-point gain (approx. ₩6,250,000)
−25-point loss (approx. ₩6,250,000)
If the index is at 1,140
Lose the full premium (approx. ₩3,750,000)
Keep the full premium (approx. ₩3,750,000)
Maximum loss
Capped at the premium paid (₩3,750,000)
Capped at (strike price − premium received)
Unlike selling a call option, the index can never theoretically fall below zero. That’s why a put option seller’s maximum loss is capped at “strike price minus premium received” — a key difference from the call side.
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When Does “Liquidation” Happen With Options?
In the futures article, we explained that “liquidation” only happens to positions that carry an obligation and margin. The exact same logic applies to options.
Position
Obligation?
Margin required?
Liquidation (margin call) risk
Buying an option
Right only (no obligation)
Not required (just pay the premium)
None (worst case, you only lose the premium)
Selling an option
Obligation
Required
Present (position can be forcibly closed out)
1Option buyers: no liquidation risk
If you’re only buying options, you don’t have to post margin, so there’s no liquidation risk to worry about — worst case, you simply lose the premium you paid.
2Option sellers: margin, margin calls, and liquidation risk
Sellers, on the other hand, have to post margin just like in futures. If losses grow, they’ll receive a margin call, and if they can’t top it up in time, their position can be liquidated (closed out via an offsetting trade).
If you focus only on “I collect a premium and profit,” it’s easy to overlook this liquidation risk when deciding to sell.
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Why Do We Even Need Options?
So far, we’ve covered what options are, how they’re traded, and how buying and selling differ. So why do people trade options at all? There are broadly two reasons.
Hedging (as insurance)
Buying a put option in advance lets you sell an asset you hold at a set price even if its market price drops, capping your downside at a certain level. It’s similar to paying an insurance premium to protect against downside risk.
Speculation (profit-seeking)
Options are also used to bet on price direction, aiming for a large payoff from a relatively small premium. Just remember: because of time decay, you can call the direction correctly and still not profit.
This raises a natural question, though. Sellers face a much worse loss structure — so why would anyone sell?
So why do people sell, then?
The potential loss is large, but in practice, this is a game you win far more often than you lose. Most options expire out-of-the-money, so it’s actually quite common for sellers to simply pocket the premium and walk away. It’s similar to how an insurer collects premiums most of the time and only pays out on the rare big claim. On top of that, time decay — the erosion of an option’s value as expiration approaches — also works in the seller’s favor. In practice, many sellers limit their risk up front, such as with a covered call, where you sell a call option against stock you already own.
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Risks Every Beginner Should Know
Time decay — as an option buyer, you keep bleeding value from time decay as time passes. Even if you call the direction correctly, time value can be nearly gone by the time expiration nears, so you may end up with far less profit than you expected.
Unlimited losses on short positions — selling a call option has, in theory, no cap on losses, and selling a put option can also produce large losses up to the strike price. It’s risky to jump into selling based only on “I get to collect a premium.”
Liquidity before expiration — options whose strike price is far from the current index (deep out-of-the-money) tend to trade thinly, which can make it hard to close your position at the price and timing you want.
SUMMARY
Key Terms and Checklist Recap
Term
One-line summary
Option
The “right” to buy or sell at a set price in the future (sellers hold an obligation)
Call option / put option
The right to buy / the right to sell
Premium
The cost of buying an option right
Strike price
The benchmark price set for the option’s trade
ITM / ATM / OTM
Profitable to exercise now / roughly break-even / a loss to exercise now
Intrinsic value
The actual profit from exercising the option right now
Time value
The value tied to the time remaining until expiration
Liquidation (offsetting trade)
A forced closing of a position after a missed margin call (applies only to sellers)
Buying an option is a right; selling is an obligation — we confirmed these are two completely different games.
Premium = intrinsic value + time value — we confirmed how time value erodes as expiration approaches.
Call and put option payoffs for buyers vs. sellers — we confirmed the opposite outcomes through worked examples.
“Liquidation” applies only to option sellers — we confirmed that buyers only ever risk the premium they paid.
Time decay, unlimited losses, and liquidity risk — we recapped the risks beginners tend to overlook.
Options carry completely different risks depending on whether you’re buying or selling, so knowing exactly which side you’re on is the first step to approaching them safely.
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CONCLUSION
Wrapping Up
Options are often mentioned in the same breath as futures, but they’re a fundamentally different product — you’re trading a “right,” not an “obligation.” That single distinction is what makes the risk buyers and sellers take on so completely different.
To recap the essentials: an option buyer’s loss is capped at the premium paid, but comes with the ongoing burden of shrinking time value; an option seller collects the premium up front but faces theoretically unlimited losses and is exposed to liquidation risk.
If you always check “am I currently holding the right, or bearing the obligation,” you’ll be much better equipped to approach options safely. In the next installment, we’ll move on to hedging strategies that combine futures and options.
This article is based on the KOSPI200 index and Korea’s domestic options trading system as of July 2026. Last updated: July 2026.
