What is a call option?
A call is a contract that gives its buyer the right, but not the obligation, to buy the underlying at the strike price until the expiration date. For standard US stock and ETF options, one contract covers 100 shares, and the premium is quoted per share, so a $2.00 call costs $200.
A call gains value when the underlying rises. At expiration it is worth the stock price minus the strike, or nothing if the stock is at or below the strike. The buyer comes out ahead at expiration only if the stock finishes above the strike plus the premium paid. If the basic terms are new to you, start with options trading for beginners.
What is a put option?
A put gives its buyer the right, but not the obligation, to sell the underlying at the strike price until expiration. It gains value when the underlying falls. At expiration it is worth the strike minus the stock price, or nothing if the stock is at or above the strike.
Traders buy puts for two main reasons: to profit from a fall without shorting the stock, and to protect shares they already own. A put on a stock you hold works like insurance with a deductible. Below the strike, gains on the put offset losses on the shares; the premium is the cost of that cover, and the gap between the stock price and the strike is the part you still carry.
Call vs put: a side-by-side comparison
Here is the difference between a call and a put for the buyer, at a glance:
- Right: a call is the right to buy at the strike; a put is the right to sell at the strike.
- Market view: a call buyer is bullish; a put buyer is bearish, or hedging shares.
- Value at expiration: call = max(stock − strike, 0); put = max(strike − stock, 0).
- Breakeven at expiration: call = strike + premium; put = strike − premium.
- Maximum loss for the buyer: the premium paid, for both.
- Maximum gain for the buyer: unlimited in theory for a call; for a put, the strike minus the premium per share, reached if the stock goes to zero.
- Time decay: works against the buyer of either one.
Buying vs selling calls and puts: the four basic positions
Every contract has two sides, so there are four basic positions. Selling an option, also called writing it, flips the risk. The seller collects the premium up front, keeps at most that premium, and must sell or buy the shares if assigned. Options on US stocks and ETFs are American-style, so a seller can be assigned on any business day while the position is open, not only at expiration.
- Long call (buy a call): bullish. The risk is limited to the premium.
- Long put (buy a put): bearish, or a hedge for shares you own. The risk is limited to the premium.
- Short call (sell a call): neutral to bearish. Without the shares, the loss is theoretically unlimited. Selling a call against 100 shares you own, a covered call, caps your upside on those shares in exchange for the premium.
- Short put (sell a put): neutral to bullish. The maximum loss is the strike minus the premium, times 100, if the stock goes to zero, and you can be assigned 100 shares at the strike.
Worked call example with breakeven math (hypothetical)
All numbers here are made up and are not a forecast. A stock trades at $50. You buy one call with a $52 strike that expires in three weeks, for $1.20. Cost: $1.20 × 100 = $120, which is also your maximum loss. Breakeven at expiration: $52 + $1.20 = $53.20, so the stock has to rise just over 6% before the trade makes money at expiration.
Here is the result at expiration at three stock prices:
- Stock at $56: the call is worth $56 − $52 = $4.00, or $400. Minus the $120 cost, a $280 gain.
- Stock at $53: the call is worth $1.00, or $100. A $20 loss, even though the stock rose $3.
- Stock at $51: the call is out of the money and expires worthless. A $120 loss, the full premium.
Worked put example with breakeven math (hypothetical)
A different stock trades at $80. You buy one put with a $78 strike that expires in three weeks, for $1.50. Cost: $150, your maximum loss. Breakeven at expiration: $78 − $1.50 = $76.50, about 4.4% below the current price. You can run these numbers, or your own, in the options profit calculator.
Here is the result at expiration at three stock prices:
- Stock at $72: the put is worth $78 − $72 = $6.00, or $600. Minus the $150 cost, a $450 gain.
- Stock at $77: the put is worth $1.00, or $100. A $50 loss, even though the stock fell $3.
- Stock at $79: the put is out of the money and expires worthless. A $150 loss, the full premium.
Call vs put strike price: in, at and out of the money
The same strike means opposite things for a call and a put. A call is in the money (ITM) when the stock is above the strike; a put is in the money when the stock is below it. At the money (ATM) means the strike is at or very near the stock price, and out of the money (OTM) is the reverse of ITM. Only in-the-money options have intrinsic value; the rest of the premium is time value.
Deeper ITM options cost more and track the stock more closely; further OTM options cost less but need a bigger move to pay. Our guide on how to choose a strike price shows how to weigh that. With a stock at $100:
- $95 call: in the money by $5. $95 put: out of the money.
- $100 call and $100 put: both at the money.
- $105 call: out of the money. $105 put: in the money by $5.
When do traders use calls, and when puts?
The view comes first and the contract second. These are the common reasons traders reach for each one, which is not the same as a reason for you to:
- A call: they expect a rise and want to risk a fixed amount instead of buying 100 shares outright.
- A put: they expect a fall and do not want to short the stock, which needs a margin account and can lose without limit.
- A put on shares they own: to cap the downside through a known event such as earnings, at the cost of the premium.
- Neither: they have no clear view, premiums are expensive because implied volatility is high, or the move they expect is too small to clear the breakeven. Our implied volatility guide shows how to check that.
How a long or short signal maps to a call or a put
Most chart signals are about the underlying. A long signal says the stock may rise from here; a short signal says it may fall. The simple mapping is that a long signal can be expressed with a call and a short signal with a put. The entry, stop and target stay levels on the stock chart; only the instrument changes.
That mapping has costs. The option can lose its whole premium, time decay works against you on a slow move, implied volatility and wider spreads add cost, and a gap can jump past your stop on the stock. So exit the option when the underlying hits your stop or target, or when a time stop runs out, rather than steering by the option price alone.
UpTickFlow, our invite-only TradingView indicator, gives long and short signals on the chart of the underlying, with an entry, stop and target drawn after the candle closes. It does not read options data or choose strikes and expirations, and it was not built specifically for options, so the contract is still your choice. Our guide to trading options with TradingView walks through the workflow, and the UpTickFlow home page has the indicator details.
Common call and put mistakes
Most confusion between calls and puts comes down to a few repeat errors:
- Treating selling a call as the same as buying a put. Both are bearish, but the put buyer risks the premium while the uncovered call seller has theoretically unlimited risk.
- Forgetting the breakeven. A call that finishes in the money can still lose money if the stock is not above the strike plus the premium.
- Buying puts after a sharp drop without checking implied volatility, when fear may already have pushed put prices up.
- Mixing up the strike rules: a strike above the stock price is out of the money for a call but in the money for a put.
- Choosing an expiration too short for the plan, so time decay does the damage before the move arrives.