Put vs Call Options: Differences, Breakevens, and In-the-Money
A call gives the holder the right to buy 100 shares at the strike price; a put gives the right to sell. Calls profit when the stock rises and puts when it falls. The buyer's maximum loss is the premium; the seller's obligation begins when the option is exercised.
Direction cheat grid
Long call: bullish. Short call: bearish. Long put: bearish. Short put: bullish. The buyer pays the premium and holds the right; the writer collects the premium and takes on the obligation.
Breakeven formulas
Call buyer breakeven = strike price + premium. Put buyer breakeven = strike price − premium. Call writer's breakeven is the same as the buyer's. The maximum loss for a long option is the premium paid.
In the money
A call is in the money when the market price is above the strike. A put is in the money when the market price is below the strike. Intrinsic value is the amount by which an option is in the money; at-the-money and out-of-the-money options have none.
Frequently asked questions
What is Put vs Call Options?
A call gives the holder the right to buy 100 shares at the strike price; a put gives the right to sell. Calls profit when the stock rises and puts when it falls. The buyer's maximum loss is the premium; the seller's obligation begins when the option is exercised.
How does Put vs Call Options show up on the exam?
Call UP, Put DOWN for in-the-money. When asked who is obligated, it is always the writer (seller), never the buyer.
Practice this concept
Sources
- Options Clearing Corporation, Characteristics and Risks of Standardized Options
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