The price of an option is called its premium. Remember that an options contract is for 100 shares. If the option price is set at $1, that is $1 per share. Buying a single option contract will cost you $1 x 100 shares $100. So the premium is $100.

When you buy option, you pay the premium up front and that becomes your total risk. You cannot lose more than the initial premium you paid for the option contract, no matter what happens to the underlying security.  The profit potential for an option holder (the buyer) is only restricted by how high the stock price can climb before the expiry date of the option.

The writer (or seller) of an option receives the premium up front. In return for the premium price received from the buyer,  the writer assumes the risk of having to sell (if a call option) or buy (if a put option) the shares of the stock at a price which could result in a loss to him. Unless an option is covered by another option or an actual position in the underlying stock, the option writer’s potential loss is open-ended. That means the seller can lose much more than the original premium received.

There are different strategies that option buyers and option sellers use to minimize risks and maximize profits. For strategy examples that are used when writing option contracts, see the examples on The Difference Between a Covered Call and a Naked Call Option.