14  •   The Intelligent Option Investor
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ITM
ATM
OTM
Date/Day Count
Stock Price
749 999
GREEN
As we will discuss in greater detail later, not only can an investor use 
options to gain exposure to a stock, but the investor also can choose to accept 
exposure to it. Accepting exposure means running the risk of a financial loss if 
the stock moves into an option’s range of exposure. If we were to accept expo-
sure to the stock’s upside potential, we would graphically represent it like this:
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RED
Any time you see a shaded region labeled “red” on diagrams like this, you 
should take it to mean that the investor has accepted the risk of realizing a loss 
on the investment and should say that the investor has accepted exposure. Any 
time an option investor accepts exposure, he or she gets to receive premium 
up front in return for accepting the risk. In the preceding example, the investor 
has accepted upside exposure by selling a call option (a.k.a. a short call).