Core idea
The right to buy or the right to sell
A call gives the right to buy an underlying at a fixed strike. A put gives the right to sell an underlying at a fixed strike.
For the buyer, the logic is simple: a call benefits from rising prices, a put from falling prices. That is why calls are often used for bullish ideas and puts for bearish ideas or protection.
The big distinction is right versus obligation: the buyer has a choice. The seller of the option takes on an obligation if the option is exercised.
A simple example
- Stock at 100 EUR This is our current spot price.
- Call with strike 95 EUR Becomes more attractive if the stock rises.
- Put with strike 105 EUR Becomes more attractive if the stock falls.
- Shortcut Call = upside idea, Put = downside idea or hedge.
Sources: DeltaValue, Call-Optionen, DeltaValue, Optionen handeln lernen, LYNX, Call Option, LYNX, What are options?