Calls and puts are the two building blocks of options trading. Get these straight and the rest of options makes far more sense.
Call option
A call gives you the right (not the obligation) to buy an asset at a fixed price (the strike) by expiry.
- You buy a call when you expect price to rise.
- Your risk as a buyer is limited to the premium you paid.
- It profits if price climbs well above the strike (plus the premium) before expiry.
Put option
A put gives you the right to sell an asset at the strike by expiry.
- You buy a put when you expect price to fall.
- Again, a buyer's risk is limited to the premium.
- It profits if price drops well below the strike (minus the premium).
Key terms
- Strike — the agreed price.
- Premium — what the buyer pays for the right.
- Expiry — when the contract settles. See expiry day.
- In/out of the money — whether exercising would currently profit.
Buyer vs seller
Buyers have limited risk, unlimited-ish reward but fight time decay. Sellers collect the premium and profit from decay, but take on large, sometimes unlimited risk. Beginners almost always start as buyers — and must respect that most bought options expire worthless.
The takeaway
Calls for up, puts for down — that's the start, not the strategy. Real options trading is about leverage, time and probability, all of which demand strict position sizing.
A call or a put is a bet with a deadline. The deadline is exactly what most beginners forget.
Education only — not financial advice.