How do options work?

When you buy an options contract, the risk involved is minimal, because you don’t have the obligation to exercise the contract; you have a choice. Therefore, if you have an options contract to buy but the strike price ends up being higher than the asset’s market price, you can decide not to exercise the contract.

Yet profit is unlimited — if you have an options contract to buy an asset for a price far lower than the market price, you have the opportunity to make a lot of money. Whatever happens to the market price, the seller is obliged to stick to the terms of the contract.

You might be wondering what sellers get out of this arrangement, but they profit from the fee holders pay to purchase an options contract. Even if the holder decides not to execute the options contract, the underwriter still earns money here. Since many option contracts expire, underwriters earn from doing practically nothing.