Call and put options explained
Every option is either a call or a put, and you can buy or sell each. That makes four basic positions - here is what each one does, with a NIFTY example and a payoff chart.
- How call and put options work
- The four basic positions, each with an interactive payoff chart
- In, at and out of the money
What is a call option?
A call option gives its buyer the right to buy the underlying at the strike price until expiry. It gains value as the price rises. Example: with NIFTY at 22,500, the 22,500 call costs ₹180 a unit, or ₹11,700 for one lot of 65. If NIFTY ends at 22,800, the call is worth 300 and the buyer makes (300 − 180) × 65 = ₹7,800. If NIFTY ends below 22,500, the call expires worthless and the buyer loses ₹11,700.
What is a put option?
A put option gives its buyer the right to sell at the strike price until expiry. It gains value as the price falls - which also makes puts the classic way to insure shares you own (a protective put). Example: the 22,500 put costs ₹170. If NIFTY ends at 22,200, the put is worth 300 and the buyer makes (300 − 170) × 65 = ₹8,450; if NIFTY ends above 22,500, the buyer loses ₹11,050.
The four basic option positions
Green is profit and red is loss at expiry, per lot, for NIFTY between −5% and +5%. “BE” is the breakeven.
Each position has its own page with live payoff and Greeks: long call, long put, short call, short put.
Call vs put at a glance
| Call option | Put option | |
|---|---|---|
| Right to | Buy at the strike | Sell at the strike |
| Buyer’s view | Price will rise | Price will fall |
| Seller’s view | Price will not rise above the strike | Price will not fall below the strike |
| Buyer’s max loss | Premium paid | Premium paid |
| Buyer’s breakeven | Strike + premium | Strike − premium |
| Delta | Positive (0 to 1) | Negative (0 to −1) |
| Common use | Bullish bet, covered call income | Bearish bet, portfolio insurance |
In, at and out of the money
| NIFTY at 22,500 | Call | Put |
|---|---|---|
| Strike 22,300 | In the money | Out of the money |
| Strike 22,500 | At the money | At the money |
| Strike 22,700 | Out of the money | In the money |
OTM options are cheaper but need a bigger move; ITM options cost more but move almost one-for-one with the price. See today’s premiums for every strike on the NIFTY option chain, and how each reacts to price and time with the option Greeks calculator.
Frequently asked questions
What is a call option?
A call option gives the buyer the right to buy the underlying at the strike price until expiry. Buyers profit when the price rises above the strike plus the premium paid.
What is a put option?
A put option gives the buyer the right to sell the underlying at the strike price until expiry. Buyers profit when the price falls below the strike minus the premium paid.
When should I buy a call or a put?
Buy a call when you expect a meaningful rise before expiry, and a put when you expect a meaningful fall - or to protect shares you own. The move has to beat the premium and time decay.
What happens when you sell a call or a put?
You receive the premium and take the obligation. A call seller gains if the price stays below the strike; a put seller gains if it stays above. Losses can be large, so sellers need margin and usually hedge.
Which is riskier, calls or puts?
For buyers, neither: the loss is capped at the premium. For sellers, a naked call has unlimited risk on a rally and a naked put a large risk on a crash.
What do ITM, ATM and OTM mean for calls and puts?
A call is in the money when the price is above its strike, a put when the price is below its strike. At the money means the strike is near the current price; out of the money means it has no intrinsic value yet.
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For education only; not investment advice. Derivatives trading carries substantial risk. Disclaimer