Calls and puts explained in plain language — what each one is, when traders use them, and the simplest way to remember the difference.
Every options trade starts with two words: call and put. Get these clear and the rest becomes far easier.
A call gives the buyer the right (not the obligation) to buy at a fixed price (the strike) before expiry. Buyers of calls expect the price to go up. If the market rises well above the strike, the call gains value.
A put gives the buyer the right to sell at a fixed price before expiry. Put buyers expect the price to go down. If the market falls well below the strike, the put gains value.
For every buyer there is a seller. The buyer pays premium for the right and has limited risk (the premium) with large potential reward. The seller receives the premium and takes on the obligation, with limited reward but larger risk. Understanding both sides is the key to trading options well.
Say an index is at 22,000. A trader who expects a rise might buy a 22,200 call. A trader who expects a fall might buy a 21,800 put. Each pays a premium; each profits only if the move is large enough to beat the premium and time decay.
All of this is covered step by step in the Option Buying course, starting from zero.