Course contents
Calls and puts
A call is the right to buy, chosen when you expect a rise. A put is the right to sell, chosen when you expect a fall or want protection. In India, CE marks a call and PE a put.
- Define a call and a put
- Give a memory aid so the two are never mixed up
- Read the CE and PE labels in Indian option names
Every option in the world, and every strategy ever built from options, comes down to just two building blocks. There are only two types of option: the call and the put. Learn to tell them apart cleanly now, and nothing later will tangle you up.
The call: the right to buy
A call is the right to buy the underlying at the strike. You buy a call when you expect the price to rise. If it climbs above your strike by enough to cover the premium, your right to buy cheap becomes valuable, because you can buy at the locked strike while the market sits higher.
Picture it through the earlier gold story. The right to buy gold at today's price, held in case gold rises, is a call. You want the underlying to go up.
The put: the right to sell
A put is the right to sell the underlying at the strike. You buy a put when you expect the price to fall, or when you want to protect something you own. If the price drops below your strike by enough to cover the premium, your right to sell high becomes valuable, because you can sell at the locked strike while the market sits lower.
The put is the mirror of the call. Where a call wants the price up, a put wants it down.
A memory aid that sticks
Mix them up once and it costs you, so fix them with a simple picture. A call lets you call the shares over to you, at the strike, so you buy them. A put lets you put the shares onto someone else, at the strike, so you sell them. And by direction: as a buyer, you reach for a call when you think up, and a put when you think down. Call, buy, up on one side. Put, sell, down on the other.
In Indian option names the two types appear as short labels. CE marks a call and PE marks a put. When you see CE, think call, the right to buy. When you see PE, think put, the right to sell. That one habit spares you costly mix-ups later.
What to carry forward
Options come in just two types, and every position is built from them. A call is the right to buy, and a buyer reaches for it expecting the underlying to rise. A put is the right to sell, chosen to profit from a fall or to protect a holding. Indian option names label them CE and PE. Hold the mnemonic close: call, buy, up on one side, and put, sell, down on the other.
You can now name and read the type of any option. The next chapter looks at the three numbers every option carries, the premium, the strike, and the expiry, and shows you how to read them straight off an option's name.