A call gives you the right to buy at a pre-agreed price (strike price) before a deadline. A put gives you the right to sell at that price within the same window. That “right, not obligation” bit is the magic here — it means you can walk away if things do not move in your favour. For traders, it is both a tool for profit and a safety net.
What are Call Options ?
Picture this: you spot a company trading at Rs.120 per share, and you feel strongly it might climb higher. Instead of buying 100 shares upfront (which costs Rs.12,000), you buy a call option that gives you the right to purchase them at Rs.120 by September 1. Now, if the stock jumps to Rs.130, you can still lock it in at Rs.120. The difference is your gain.
Of course, there is a catch — you pay a “premium” for this privilege. Think of it as a ticket fee. If you buy the option for Rs.200 and the stock price stays flat or falls, you simply let the contract expire. Your only loss is that Rs.200. It is like paying for a movie ticket you did not watch — disappointing, but the damage stops there.
What are Put Options?
Now flip the script. Say you already own 100 shares worth Rs.100 each, but you worry the price may tumble to Rs.90. A put option acts like insurance here. You pay a premium and buy the right to sell at Rs.100 regardless of where the market goes. If the price actually falls, you are shielded from the full loss because you can offload at your pre-decided strike price.
But again, if the stock stays strong at Rs.100 or more, you do not have to use it. The put option simply lapses, and the premium you paid is the only cost. Not gonna lie — this is why many traders like puts for hedging. It feels reassuring to have a safety net while you ride the uncertainty.
Types of Strike Price Call and Put Options
Understanding how strike prices interact with market prices helps you judge whether an option carries real value or not:
For calls, this means the stock price is above the strike price. For puts, the stock price is below. These options already have intrinsic value.
When strike and market prices are nearly equal. Usually, these carry the highest time value.
A call is OTM if the stock is trading below the strike price. A put is OTM if the stock is trading higher. They have no intrinsic value — and might expire worthless.
Important Terms Related to Call and Put Options
Term
| Meaning
|
Strike price
| The pre-decided price at which the asset can be bought or sold
|
Expiry date
| The final date to exercise the option
|
Premium
| The cost you pay to hold the contract
|
Lot size
| Number of units per contract (e.g., 100 shares per option)
|
Open interest
| Total number of live contracts in the market
|
Intrinsic value
| The real value of an ITM option
|
Time value
| Extra value based on time remaining before expiry
|
Exercise
| Actually using your right to buy (call) or sell (put)
|
Call Option Example
Let us make this concrete. Suppose you are eyeing Tata Motors, currently trading at Rs.600. You buy a call option with a strike price of Rs.620, paying Rs.20 as premium per share. If Tata Motors climbs to Rs.650 before expiry, you can buy at Rs.620. Your profit? (650 – 620 – 20) × number of shares. If the stock never touches Rs.620, your loss is capped at the premium.
This is why traders like calls — limited downside, potentially huge upside. But there is also the tricky psychology of timing. If the stock moves up after expiry, too bad. Your call expires worthless. Sometimes, that sting is worse than the small loss itself.
Put Option Example
Now picture ITC trading at Rs.450, and you think it may dip to Rs.420. You buy a put option with a strike price of Rs.440, paying Rs.10 premium per share. If ITC does fall to Rs.420, you can still sell at Rs.440. Your effective gain? (440 – 420 – 10) × shares in the lot. If ITC holds steady above Rs.440, the put expires, and your loss is the premium.
Puts often feel like insurance. You pay a fee for peace of mind, and sometimes you do not use it. But on bad market days, when everyone else is panicking, that put can be the difference between damage control and disaster.
How to Calculate Call and Put Option Payoff?
The payoff is just a fancy word for profit or loss. For calls:
Payoff = Max[(Spot price – Strike price), 0] – Premium
If the market price is above the strike, you make money. Otherwise, you lose only the premium.
For Puts:
Payoff = Max[(Strike price – Spot price), 0] – Premium
If the market drops below the strike, you gain. If not, the loss is capped at the premium.
In practice, traders often use payoff diagrams — those hockey-stick-shaped graphs that show profits shooting up on one side and flat-lining on the other. They look intimidating but are just simple visuals of these formulas. Once you sketch one out, options trading starts to click.
Difference Between Call and Put Option
Parameter
| Call option
| Put option
|
Meaning
| Right to buy
| Right to sell
|
Investor’s expectation
| Expects price to rise
| Expects price to fall
|
Maximum profit
| Theoretically unlimited
| Limited to the fall in asset price
|
Maximum loss
| Premium paid
| Premium paid
|
Ideal action
| Exercise if price rises
| Exercise if price falls
|
Risk Vs Reward – Call Option and Put Option
Aspect
| Call option
| Put option
|
Risk
| Limited to premium
| Limited to premium
|
Reward
| High if price rises
| High if price falls
|
Strategy type
| Bullish
| Bearish
|
Use case
| Profit from uptrend
| Hedge/profit from downtrend
|
Conclusion
So, here is the gist. A call gives you the right to buy. A put gives you the right to sell. Together, they are like two sides of the same coin in the options market — tools for speculation, risk management, or sometimes just peace of mind.
If you are bullish, you may lean on calls. If you are bearish, puts are your ally. Either way, understanding how they work keeps you from being blindsided. And in trading, not being blindsided is half the battle.
