Stock Market · Options Theory

Calls vs puts

Call and put options are mirror images of each other. Understanding both is essential because every options strategy is built from some combination of buying or selling calls and puts.

Call options

A call option gives the buyer the right to BUY the underlying at the strike price.

• Buy call: bullish (you want the price to rise)
• Sell call: bearish to neutral (you collect premium and want price to stay below strike)

Example: Buy Nifty 22,200 call at ₹150 premium.

If Nifty rises to 22,500: intrinsic value = 22,500 − 22,200 = ₹300. Profit = ₹300 − ₹150 = ₹150 × 75 = ₹11,250.

If Nifty stays at 22,100: call expires worthless. Loss = ₹150 × 75 = ₹11,250.

[payoff:call|strike=22200|premium=150]

Put options

A put option gives the buyer the right to SELL the underlying at the strike price.

• Buy put: bearish (you want the price to fall)
• Sell put: bullish to neutral (you collect premium and want price to stay above strike)

Example: Buy Nifty 22,000 put at ₹130 premium.

If Nifty falls to 21,500: intrinsic value = 22,000 − 21,500 = ₹500. Profit = ₹500 − ₹130 = ₹370 × 75 = ₹27,750.

If Nifty stays at 22,100: put expires worthless. Loss = ₹130 × 75 = ₹9,750.

[payoff:put|strike=22000|premium=130]

> Buying puts is the purest way to profit from or protect against a market decline. They're cheaper than selling futures short and have limited loss.

Buy callbullish bet with limited downside

Buy putbearish bet with limited downside

Sell callcollect premium, neutral-to-bearish

Sell putcollect premium, neutral-to-bullish

Takeaway. Buy calls when bullish; buy puts when bearish. Both limit buyer loss to premium. Sellers collect premium and have nearly unlimited risk. Know all four positions before trading options.