Options - Calls vs Put

I realized I’ve been diving into trades without actually explaining the "what" and the "how" of the instruments I’m using. Since it’s Sunday and the markets are closed, it’s the perfect time to break down Options for the log.

In plain terms, an option is exactly what it sounds like: a choice. It is a contract that gives you the right—but not the obligation—to buy or sell a stock at a specific price within a specific window of time.

Think of it as "locking in" a price today for a move you think will happen tomorrow. Here is how the two main types work:

1. Call Options (The "I think it's going up" bet)

A Call Option gives you the right to buy a stock at a set price (the Strike Price).

• The Scenario: Let’s look at my $SQM contract. The stock is currently at $86, but I believe it’s headed higher, based on my analysis. I buy a $90 Strike Call expiring February 20.
• The Cost: I paid a premium of $2.40. Since every contract covers 100 shares, that’s $240 total ($2.40 x 100).
• The Outcome: If $SQM hits $100, I still get to buy it at my locked-in price of $90. That $10 difference ($1,000 value) minus my $320 premium is my profit. However, if the stock stays below $90 by Feb 20, the option expires worthless and I lose the $320 I paid.

The Math: To make a profit, the stock needs to clear my Break-Even Price.

$Strike ($90) + Premium ($2.40) = $92.40

2. Put Options (The "I think it's going down" bet)

A Put Option gives you the right to sell a stock at the Strike Price. This is how traders profit when a stock price drops.

• The Scenario: Let’s say I think $SQM is going to crash. I buy an $80 Strike Put for Feb 20.
• The Cost: If the "ask" price (premium) is $2.40, I pay $240 for the contract.
• The Outcome: If $SQM drops to $70, I have the right to sell shares at $80—even though they are only worth $70 on the open market.
• The Risk: If $SQM stays above $80, I don't "own" anything; the option simply expires, and I lose the $240 premium I paid to play.

The Math: My break-even is the Strike Price minus the premium.

$Strike ($80) - Premium ($2.40) = \$77.60

There are other concepts of terms to consider when trading options, but they deserve their own post. We can get into the greeks starting tomorrow; this will allow us to understand how time may affect the price of a contract.