Calls and puts
ConceptLevel: BeginnerStep 2 of 13 in Start here
A call option is the right to buy 100 shares of a stock at the strike price, and a put option is the right to sell 100 shares at the strike price, until the option expires.
Key points
- A call gains value when the stock rises, and a put gains value when the stock falls.
- The buyer of a call or of a put can lose the premium paid and no more.
- The writer of a call must deliver the shares at the strike price if assigned, and the writer of a put must buy them.
- At expiration a call is worth the stock price less the strike price, a put is worth the strike price less the stock price, and neither is worth less than zero.
On this page
Every option is one of two types. The type says which right the holder has: a call is a right to buy, a put is a right to sell. Everything else about the two contracts is the same.
What a call option is
A call option gives its holder the right to buy 100 shares of the underlying stock at the strike price until the option expires. The holder pays the premium for that right.
A call becomes more valuable as the stock rises. With the stock at $58, the right to buy it at $50 is worth at least $8 per share. With the stock at $45, the same right is worth nothing at expiration, because the shares cost less in the market than through the call.
The writer of the call holds the other side. If the call is assigned, the writer must deliver 100 shares at the strike price, whatever they cost in the market on that day.
What a put option is
A put option gives its holder the right to sell 100 shares of the underlying stock at the strike price until the option expires.
A put becomes more valuable as the stock falls. With the stock at $43, the right to sell it at $50 is worth at least $7 per share. With the stock at $55, the same right is worth nothing at expiration, because the shares sell for more in the market than through the put.
The writer of the put must buy 100 shares at the strike price if the put is assigned, whatever they are worth in the market on that day.
What a call and a put are worth at expiration
At expiration an option is worth the amount by which it is in the money, and nothing when it is not.
| Stock price at expiration | 50 call is worth, per share | 50 put is worth, per share |
|---|---|---|
| $40 | $0 | $10 |
| $45 | $0 | $5 |
| $50 | $0 | $0 |
| $55 | $5 | $0 |
| $60 | $10 | $0 |
The result for the holder is this value less the premium paid. The result for the writer is the premium received less this value.
The four positions in calls and puts
A call or a put can be bought or written, which gives four positions.
| Position | The right or the obligation | Gains when the stock | The most it can lose |
|---|---|---|---|
| Long call (bought) | Right to buy at the strike | Rises | The premium paid |
| Short call (written) | Obligation to deliver at the strike | Stays below the strike | No upper limit, if the shares are not owned |
| Long put (bought) | Right to sell at the strike | Falls | The premium paid |
| Short put (written) | Obligation to buy at the strike | Stays above the strike | The strike price less the premium, per share |
Option buyers and sellers describes the two sides in full.
Example of a call option bought for $2.00
| Stock price at expiration | Profit or loss, per share | Profit or loss, per contract |
|---|---|---|
| $40 | -$2 | -$200 |
| $50 | -$2 | -$200 |
| $52 | $0 | $0 |
| $65 | +$13 | +$1,300 |
Example of a put option bought for $1.50
| Stock price at expiration | Profit or loss, per share | Profit or loss, per contract |
|---|---|---|
| $35 | +$13.50 | +$1,350 |
| $48.50 | $0 | $0 |
| $50 | -$1.50 | -$150 |
| $60 | -$1.50 | -$150 |
What can go wrong with calls and puts
The buyer of a call or a put needs more than the right direction. The stock has to move past the break-even price, and it has to do so before the option expires. A call on a stock that rises after the expiration date has already expired worthless.
The writer of a call or a put is paid the premium and carries the larger risk. A written put obliges its writer to pay the strike price for shares that may have fallen far below it. A written call on shares the writer does not own has no limit to its loss.
Questions and answers
Can the buyer of a call lose more than the premium?
No. The buyer of a call can let it expire, and then the whole premium is lost and nothing more. The same holds for the buyer of a put.
Is buying a put the same as selling a stock short?
No. Both gain when the stock falls. The buyer of a put can lose the premium and no more, and the put ends at its expiration date. A seller of shares short risks an unlimited amount, because the price of the shares can rise without limit.
Terms used on this page
- Call option
- An option that gives its holder the right to buy the underlying shares at the strike price. The writer of a call must deliver the shares at that price if the call is assigned.
- Put option
- An option that gives its holder the right to sell the underlying shares at the strike price. The writer of a put must buy the shares at that price if the put is assigned.
- Strike price
- The price per share at which the holder of an option may buy (a call) or sell (a put) the underlying shares. It is fixed for the life of the option.
- Premium
- The price of an option, quoted per share. One standard contract covers 100 shares, so a premium of $1.50 is $150 per contract.
- Break-even
- The price of the underlying at expiration at which a position neither makes nor loses money. For a long call it is the strike price plus the premium paid; for a short put, the strike price less the premium received.
- Assignment
- The notice to the writer of an option that a holder has exercised it, which obliges the writer to deliver (a call) or to buy (a put) the shares at the strike price.
Sources
- Characteristics and Risks of Standardized Options, The Options Clearing Corporation (read 29 September 2026). The options disclosure document, edition of June 2024.
- Options Basics, The Options Industry Council (read 29 September 2026).
- Long Call, The Options Industry Council (read 29 September 2026).
- Long Put, The Options Industry Council (read 29 September 2026).
- An Introduction to Options – Investor Bulletin, U.S. Securities and Exchange Commission (read 29 September 2026).