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The 4 Building Blocks of Options
Weekly Edition: August 12th, 2026
Market Movements
Current Level | Weekly Return | YTD | |
|---|---|---|---|
S&P 500 | 7,728.20 | -0.559% | 12.89% |
NASDAQ | 26,445.45 | -0.946% | 13.78% |
Dow Jones | 53,791.85 | -0.874% | 11.92% |
VIX | 15.28 | -5.387% | 2.21% |
Russell 2000 | 3,027.12 | -0.372% | 21.06% |
*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.
Weekly Watch
Inflation in Focus — July CPI drops Wednesday (Today). Any hotter-than-expected number could change expectations for interest rates, especially with oil back up.
AI Gets Another Test — SMCI, CoreWeave, Cisco, etc. report this week, giving us another look at whether massive AI spending is actually paying off.
The Consumer Gets Tested — July retail sales come Friday. Investors will be watching to see if consumers are still spending despite signs of a slowing job market.
Premium Could Get More Interesting — CPI, PPI, retail sales, and big earnings could bring some volatility back. For us option sellers, that could mean better premiums and tastier opportunities.
Thought Throttle
There are dozens of options strategies.
Iron Condors. Jade Lizards. Collars. Calendars. Diagonals.
At first, it feels like learning an entirely new language. But the options portion of every strategy is built from the same four pieces:
Buy a Call
We pay for the right to buy shares at a set price. On its own, this is typically a bullish position—we profit if the stock rises enough to cover what we paid.
Sell a Call
We get paid for taking on the obligation to sell shares at a set price. If the stock rises above our strike, we may be required to sell at that price.
Buy a Put
We pay for the right to sell shares at a set price. On its own, this can profit from a falling stock or act as insurance on shares we already own.
Sell a Put
We get paid for taking on the obligation to buy shares at a set price. If the stock falls below our strike, we may end up owning it at an effective discount.
That's it. Everything else is basically a combination of these four pieces.
A cash-secured put is simply a sold put.
A covered call is stock + a sold call.
A bull put spread is a sold put + a bought put.
A collar is stock + a bought put + a sold call.
An iron condor is a bull put spread + a bear call spread (4 legs… wow).
A Jade Lizard is a sold put + a bear call spread.
A Poor Man’s Covered Call is a long call + a short call.
The names make options sound much more complicated than they actually are. Instead of trying to memorize dozens of strategies, we can learn what the individual pieces do.
Once we understand the building blocks, we can start putting them together ourselves.
“Good-To-Know’s”
Rights vs Obligations — When we buy an option, we buy a right; we can choose whether or not to exercise it. When we sell an option, we take on an obligation; if the buyer exercises, we have to fulfill our side.
Buy Call → Right to buy shares
Sell Call → Obligation to sell shares
Buy Put → Right to sell shares
Sell Put → Obligation to buy shares
The buyer pays the premium. The seller collects it.
Understand those four pieces, and most options strategies become much easier to break down.
Quote(s) I Like
“The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.”
“Look at those hedge funds - you think they can wait? They don't know how to wait! I have sat for years at a time with $10 to $12 million in treasuries or municipals, just waiting, waiting...As Jesse Livermore said, 'The big money is not in the buying and selling...but in the waiting.'“
Trade Mechanics
Let’s look at an opportunity for a cash-secured put in Amazon (AMZN).
The strike below represents roughly a 28-delta put expiring September 18, 2026.
AMZN | |
|---|---|
Current Price (8/11/2026) | $272.27 |
Put Sold | Sept. 18 $260 Put (~28 Delta) |
Mid-Premium | $4.85 |
Capital At-Risk | $25,515 |
Return if Not Assigned | $485 / $25,515 = 1.90% |
Annualized Return | ≈ 19.83% |
Cost Basis if Assigned | $255.15 (~6.3% discount) |
If we were excited about buying Amazon (AMZN) at a discount, we could sell the $260 September 18 Put for about $4.85 in premium. With shares trading near $272.27, that represents roughly a 1.90% return on risk over 38 days, and about a 6.3% discount from the current price if assigned.
If the stock remains above $260 through expiration, the option expires worthless and the premium is kept as income. If the stock falls below the strike, assignment would result in purchasing shares at an effective cost basis of $255.15.
This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.
Throttle Q&A
Does Mean Reversion Mean Things Calm Down?
Not necessarily. Reversion recenters price, but it doesn’t erase volatility. A historically volatile stock may revert with equally volatile moves. The personality of the asset still matters.
Does a Lower Percentage Return Mean a Worse Trade?
Not necessarily.
The ideal return depends on your risk appetite, along with other factors focused on in personal finance. Higher returns often come with higher volatility and risk. Lower returns could still be a better overall fit for you if they align with your goals and comfort level with risk. As in most of finance, it is about the dance between risk and reward.
Got any questions or comments? Feel free to reply to this email—we’d love to hear from you!
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Disclaimer
The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.
Options come with inherent risks. We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.
