Basics

Call and Put explained simply

Calls and puts are the two basic building blocks in options trading. Once you understand them, direction, risk, and payoff structure become much easier to read.

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.
  • Long call with strike 95 EUR Benefits from rising stock prices. This call would be ITM, or in the money, because the strike is below the current spot price.
  • Long put with strike 105 EUR Benefits from falling stock prices. At a spot price of 100 EUR, this put would also be ITM, because the strike is above the current spot price.
  • OTM note A put would be OTM, or out of the money, if its strike is below the current spot price, for example at 95 EUR.
  • Shortcut Call (Long) = upside idea, Put (Long) = downside idea or hedge.