SIE Options Basics: Calls, Puts and the Four Positions
Updated October 27, 2026
Options trip up more SIE candidates than almost any other product, but the basics come down to two contracts and four positions. Learn those and most options questions become simple. Here’s what to know, followed by free practice questions.
Calls and puts
- A call gives the buyer the right to buy the underlying stock at the strike price until expiration.
- A put gives the buyer the right to sell the underlying stock at the strike price until expiration.
The buyer (holder, long) pays a premium and has the right. The seller (writer, short) receives the premium and has the obligation if the buyer exercises. One standard equity option contract covers 100 shares.
The four positions
| Position | Market view | Breakeven | Maximum gain | Maximum loss |
|---|---|---|---|---|
| Buy a call | Bullish | Strike + premium | Unlimited | Premium paid |
| Sell a call (uncovered) | Bearish | Strike + premium | Premium received | Unlimited |
| Buy a put | Bearish | Strike − premium | Strike − premium | Premium paid |
| Sell a put | Bullish | Strike − premium | Premium received | Strike − premium |
A quick memory trick: buyers of calls and sellers of puts are bullish; buyers of puts and sellers of calls are bearish.
In, at and out of the money
| Call | Put | |
|---|---|---|
| In the money | Stock price above the strike | Stock price below the strike |
| At the money | Stock price equals the strike | Stock price equals the strike |
| Out of the money | Stock price below the strike | Stock price above the strike |
Intrinsic value is the amount an option is in the money. An out-of-the-money option has no intrinsic value.
Free SIE options practice questions
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An investor who expects a stock to rise and wants limited risk would most likely:Answer: CBuying a call is bullish, and the most the buyer can lose is the premium paid. Selling a put is also bullish, but its risk is much larger.
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What is the maximum loss for the seller of an uncovered call?Answer: BThere's no limit to how high a stock can rise, so an uncovered call seller's potential loss is unlimited.
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XYZ stock is at $48. Which XYZ option is in the money?Answer: CA put is in the money when the stock price is below the strike. At $48, the 50 put is in the money by $2. The 50 and 55 calls are out of the money, and so is the 45 put.
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An investor buys one ABC 60 put at $4. What is the breakeven price?Answer: AFor a put buyer, breakeven = strike − premium = $60 − $4 = $56.
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How many shares does one standard equity option contract cover?Answer: DOne standard equity option contract covers 100 shares, so a $3 premium costs $300 per contract.
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Which two positions are bearish?Answer: BBuyers of puts profit when the stock falls, and sellers of calls profit when the stock stays down. Both are bearish.
More calculations: SIE exam formulas.
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