← Home1 / 6Premiums →

Calls & Puts — The Two Sides

Every option has a buyer and a writer. One pays a premium for a right. The other collects that premium and takes an obligation. Everything else follows from this.

The Agreement

Two Parties, One Contract

An option is a contract between two peers. The buyer pays a premium for the right — not the obligation — to buy or sell an asset at a specific price. The writer collects the premium and locks collateral to guarantee the deal.

BUYERPays premiumGets: the RIGHTto buy (call) or sell (put)at the strike priceMax loss: premium paidUpside: unlimited (calls)CONTRACTAsset: ERGStrike: $0.35Expiry: 30 daysType: CallSettlement: CashErgoScriptWRITERCollects premiumTakes: the OBLIGATIONto fulfill the contractif exercisedMax profit: premiumRisk: locked collateral6 SigUSD premium →Collateral locked⚠ P2PPremium flows only when a buyer purchases the token — not at mint.Collateral is locked at mint whether or not a buyer ever appears.
Payoff at Expiration

Call Option — Profit When Price Rises

A call gives the buyer the right to buy at the strike price. If the underlying rises above the strike, the buyer profits. The writer's gain is capped at the premium collected.

P&L (SigUSD)$0+profit-lossFIRO Price at Expiry →$0.20$0.30$0.35$0.40$0.50strike $0.35breakeven← buyer max loss: -6 SigUSD (premium)← writer max profit: +6 SigUSDBuyerWriter

The buyer's maximum loss is always the premium — 6 SigUSD, no more. The writer profits only when the price stays below the strike. Past the breakeven point (strike + premium), the buyer is in profit.

The Mirror Image

Put Option — Profit When Price Falls

A put gives the buyer the right to sell at the strike price. If the underlying drops below the strike, the buyer profits. It's the opposite of a call — you profit when the price goes down.

P&L (SigUSD)$0FIRO Price at Expiry →$0.05$0.15$0.25$0.30$0.40strike $0.25breakevenbuyer max loss: -6 SigUSD →← writer max profit: +6 SigUSDbuyer max profit:strike - premiumBuyerWriter

For puts, the buyer's maximum profit is the strike price minus the premium (the underlying can't go below zero). The writer's maximum loss is the full strike value minus the premium collected.

Side by Side

Calls vs. Puts at a Glance

CallPut
Buyer profits when...Price rises above strikePrice falls below strike
Writer profits when...Price stays below strikePrice stays above strike
Buyer's max lossPremium paidPremium paid
Writer's max lossCollateral locked (capped upside sold)Full strike value
Buyer's max profitUnlimited (price can rise forever)Strike - premium (price floor = $0)
Collateral (Etcha)Physical: rsToken
Cash: stablecoins		Stablecoins (SigUSD / USE)
Sentiment (your view)Bullish ↑ (price goes up)Bearish ↓ (price goes down)
Worked Example

A Call Trade on Etcha

Scenario: FIRO $0.75 Call (Cash-Settled)
1
FIRO is trading at $0.65. You believe it's heading higher. You buy 100 contracts of the $0.75 call on Etcha for 6 SigUSD total premium.
2
At expiry, FIRO hits $0.85. Your option is in the money.
Payout = ($0.85 − $0.75) × 100 = 10 SigUSD
Net profit = 10 − 6 = 4 SigUSD
3
Alternatively: FIRO stays at $0.65. Your call expires worthless.
Loss = 6 SigUSD (the premium). Nothing more. Ever.
P2P realityThe writer's side: They locked collateral before you bought the option. If no buyer had appeared, their collateral would have sat locked with zero premium earned until expiry. On Etcha, there's no guaranteed counterparty — the writer posted the option, you chose to buy it.
Key Takeaway

Buyers pay a defined premium for a right. Writers collect that premium and take on an obligation. The buyer's maximum loss is always the premium — nothing more. The writer's maximum loss is limited to their locked collateral. Every option trade is a two-sided agreement between peers.