Call and Put Options: Meaning, Types, Difference & Examples

05 February 2025
6 min read
Call and Put Options: Meaning, Types, Difference & Examples
whatsapp
facebook
twitter
linkedin
telegram
copyToClipboard

If you’re new to options trading, you'll often hear two important terms:
Put options and Call options.” 

The whole theory of how traders profit when the market is bullish and bearish revolves around these options.
If you want to know how, read the blog till the end, as we’ll make a thorough comparison between Put vs Call Options

What is a Call Option?

A Call option gives the investor/trader the right (but not obligation) to buy an underlying asset at a strike (target) price. The quantity is purchased for a premium and in lots. Every option contract has an expiry date, on which it becomes invalid. 

Those who buy the call option contract are known as Option Buyers.” 

Below’s an example of the Call Option. 

Here,

  • Index: BANKNIFTY
  • Expiry Date: 30 Jan
  • Premium: 652.80 
  • One Lot Size: 15

Strike Price: 49500

What is Call Option

📣 IPOs to look out for
Companies
Type
Bidding Dates
SMECloses Today
SMECloses Today
SMECloses 10 Feb
SMECloses 10 Feb
SMECloses 11 Feb

What is Put Option?

A Put Option gives the holder the right to sell an underlying asset at a target price (called the strike price). The seller (also called the writer) of a put option is obligated to buy the asset at the strike price if the buyer exercises the option.

Like CE, PE also has an expiry date on which the contract expires and becomes invalid. The ones who sell put option contracts are known as Option Sellers.”

Below’s an example of the Put option.  

Here,

  • Index: BANKNIFTY
  • Expiry Date: 30 Jan
  • Premium: 444.00 
  • One Lot Size: 15
  • Strike Price: 49000

Put Option

That was it for the basics!

Now, let’s look at some of the important terms that you must understand before taking a call or put position. 

Types of Strike Price Call & Put Options

For any underlying asset, you can buy different strike price options, i.e., 

  • OTM (Out-of-The-Money)
  • ATM (At-The-Money)
  • ITM (In-The-Money)

For instance, NIFTY is at Rs 20,000, below the types of strike price options you can buy: 

For CE: 

  • 20,000 CE (At-The-Money)
  • Less than 20,000, like 19,800 CE (In-The-Money)
  • More than 20,000, like 20,200 CE (Out-of-The-Money)

For PE: 

  • 20,000 PE (At-The-Money)
  • More than 20,000 (In-The-Money), like 20,100 PE. 
  • Less than 20,000 (Out-of-The-Money), like 19,900 PE. 

The choice between ATM, OTM, and ITM options significantly influences potential profits and risks. 

Important Terms Related To Call And Put Options

Intrinsic Value

It is the difference between the underlying asset’s price and the strike price.

Only the "in-the-money" option has an intrinsic value. If an option is "out-of-the-money" or "at-the-money," its intrinsic value is zero.

Time Value

The extra amount you pay over the intrinsic value for the potential of future gains before expiration. 

Premium

Premium is calculated using “Intrinsic Value + Time Value.” This is the upfront cost you pay to buy the option. Even if the trade goes against you, the maximum loss you’ll face is limited to this premium.

Theta

Measures the rate at which an option loses value as it approaches expiration.

Time/Theta Decay

Time decay refers to the reduction in the value of an option as it approaches its expiration date. 

Example of Call Option

A call option is used when the underlying asset's price is expected to increase, i.e., a bullish sentiment is anticipated.

For instance, NIFTY’s current price is Rs. 20,300, and the target is Rs. 20,600. 

Technical analysis suggests an upward movement, and you buy in the money option of 20,200 for a premium of Rs. 150*25=3750

The total premium paid is 3,750 (excluding brokerage and other charges). 

Scenario 1) Before the expiry if NIFTY reaches the target price of ₹20,600, the intrinsic value of the call option will be:

Intrinsic Value = Target Price - Strike Price = ₹20,600 - ₹20,200 = ₹400

Since the premium paid was ₹150, your net profit per lot would be:

Net Profit = (Intrinsic Value - Premium) * Lot Size

Net Profit = (₹400 - ₹150) * 25 = ₹250 * 25 = ₹6,250

So, your total profit in this trade is ₹6,250. 

Scenario 2): If NIFTY doesn’t move up (stays at ₹20,300 or below):
If NIFTY stays below the strike price of ₹20,200, the option will expire worthless. In this case, you lose the entire premium paid, i.e., ₹3,750. 

Example of Put Option

A put option is used when the underlying asset's price is expected to decrease, i.e., a bearish sentiment is anticipated. 

Let’s say NIFTY is at ₹20,200, and based on your analysis, you expect it to fall to ₹20,000.

You buy an in-the-money (ITM) put option with a strike price of ₹20,300 at a premium of ₹150 per unit. The lot size is 25 units.

Total Premium Paid = ₹150 × 25 = ₹3,750 (excluding brokerage and other charges). 

Scenario 1: Before the expiry, If NIFTY falls to ₹20,000

If NIFTY drops to ₹20,000, the intrinsic value of the put option will be:

Intrinsic Value = Strike Price - Underlying Asset Price = ₹20,300 - ₹20,000 = ₹300

Profit per unit: Intrinsic Value - Premium Paid = ₹300 - ₹150 = ₹150

Total Profit = ₹150 × 25 = ₹3,750

Scenario 2: If NIFTY stays at ₹20,200 (No Movement)

If NIFTY stays at ₹20,200, the intrinsic value of the put option will be:

Intrinsic Value = ₹20,300 - ₹20,200 = ₹100

Net profit per unit:
Profit = Intrinsic Value - Premium Paid = ₹100 - ₹150 = -₹50 (Loss)

Total loss: ₹50 × 25 = ₹1,250

Scenario 3: If NIFTY moves above ₹20,300

If NIFTY remains above ₹20,300 (e.g., ₹20,350), the option will expire worthless. In this case, you lose the entire premium paid. 

How To Calculate Call and Put Option Payoffs 

Payoff refers to the profit or loss an option buyer or seller experiences at expiration, depending on the underlying asset’s price.

Call Option Payoff

Buyer’s Payoff (Long Call)

max(0, Spot price ​−Strike Price)-Premium 

Maximum Loss: Limited to the premium paid.

Maximum Profit: Unlimited

Seller’s Payoff (Short Call)

min(0,Strike Price−Spot Price at Expiry) +Premium

Maximum Profit: Limited to the premium received.

Maximum Loss: Unlimited

Put Option Payoff

Buyer’s Payoff (Long Put)

max(0,Strike Price – Spot Price​)−Premium

Maximum Loss: Limited to the premium paid.

Maximum Profit: Limited

Seller’s Payoff (Short Put)

min(0,Spot Price ​−Strike Price)+Premium

Maximum Profit: Limited to the premium received.

Maximum Loss: High (if the stock price drops significantly).

Difference Between Call and Put Option

Below’s a quick head-to-head difference between the call and put option. 

Aspect

Call

Put

Market Sentiment

Underlying asset's price is anticipated to rise (bullish sentiment).

Underlying asset's price is anticipated to fall (bearish sentiment).

Buyer’s View

Bullish (expects price to rise).

Bearish (expects price to fall).

Seller’s View

Bearish

Bullish

Maximum Profit

Unlimited

Limited to the strike price minus the premium paid.

Maximum Loss

Limited to the premium paid.

Limited to the premium paid.

Common Question Regarding Options

What are the advantages of buying options?

There are various advantages to buying options or doing option trading. 

  • For example, if a stock is priced at 2,000, purchasing a single share in equity will cost 2,000. However, you can buy an option for the same stock at a fraction of the cost, often as low as 30–40, depending on the time decay. 
  • Options are highly volatile, and their prices can move dramatically within a short period. For instance, in a bullish market, an option priced at 30 could jump to 300 in a single day. 
  • Options can also be used to hedge your positions in stocks. For example, you own HDFC Bank shares, and there’s news suggesting a potential decline in the stock price. To protect against this downside:
  • You can buy a put option for HDFC Bank.
  • If the stock price falls, the profits from the put option will help offset the losses in your stock holdings.

Conclusion

Both put and call options offer opportunities to hedge risks or profit from market movements. However, options trading carries a lot of risk; according to SEBI, 9 out of 10 individual traders in the equity futures and options (F&O) segment continue to incur losses.  

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Groww Invest Tech Pvt. Ltd. (Formerly known as Nextbillion Technology Pvt. Ltd) Ltd. do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
Do you like this edition?
ⓒ 2016-2025 Groww. All rights reserved, Built with in India
MOST POPULAR ON GROWWVERSION - 5.7.3
STOCK MARKET INDICES:  S&P BSE SENSEX |  S&P BSE 100 |  NIFTY 100 |  NIFTY 50 |  NIFTY MIDCAP 100 |  NIFTY BANK |  NIFTY NEXT 50
MUTUAL FUNDS COMPANIES:  GROWWMF |  SBI |  AXIS |  HDFC |  UTI |  NIPPON INDIA |  ICICI PRUDENTIAL |  TATA |  KOTAK |  DSP |  CANARA ROBECO |  SUNDARAM |  MIRAE ASSET |  IDFC |  FRANKLIN TEMPLETON |  PPFAS |  MOTILAL OSWAL |  INVESCO |  EDELWEISS |  ADITYA BIRLA SUN LIFE |  LIC |  HSBC |  NAVI |  QUANTUM |  UNION |  ITI |  MAHINDRA MANULIFE |  360 ONE |  BOI |  TAURUS |  JM FINANCIAL |  PGIM |  SHRIRAM |  BARODA BNP PARIBAS |  QUANT |  WHITEOAK CAPITAL |  TRUST |  SAMCO |  NJ