Options — calls, puts, strategies, OCC
**Listed options** are standardized contracts, cleared by the **OCC** (Options Clearing Corporation). Standard contract = 100 shares of the underlying.
• **Call** — right to BUY at the strike price before expiration. Long call bets on an UP move. Breakeven = strike + premium. • **Put** — right to SELL at the strike price. Long put bets on a DOWN move. Breakeven = strike − premium.
Option writers (short positions) face unlimited risk on short naked calls; limited-but-large risk on short puts.
**Basic strategies:** • **Covered call** — long 100 shares + short 1 call. Generates income; caps upside. • **Protective put** — long 100 shares + long 1 put. Insurance. • **Straddle** — long call + long put same strike/expiration. Bets on volatility, not direction. • **Bull call spread** — long lower-strike call, short higher-strike call. Limited risk, limited reward.
**Account requirements:** an **Options Account Agreement** and the OCC Characteristics & Risks disclosure ('options booklet') must be delivered prior to the first options transaction. FINRA Rule 2360 requires account approval by a registered options principal (ROP) based on investment experience, knowledge, and financial capacity. Most firms use levels 1–5 (1 = covered calls; 5 = naked index options).
**Margin:** Reg T for options is different from stocks — long options are paid in full; short uncovered equity options require 20% of underlying + premium − OTM amount (floor 10%).