Calls vs. Puts Explained
Two types of options — one gives you the right to buy, the other to sell
Calls: The Right to Buy
A call option gives you the right to buy 100 shares of a stock at a specific price (the strike price) by a specific date (the expiration). You pay a premium for this right. If the stock rises above the strike price, your call becomes valuable because you can buy the stock below the market price.
For example, if you buy an AAPL $190 call and the stock rises to $200, your option lets you buy at $190 — a $10 per share advantage.
Puts: The Right to Sell
A put option gives you the right to sell 100 shares at the strike price by expiration. Puts increase in value when the stock price falls. They are commonly used as insurance to protect a stock position from losses.
If you own AAPL at $190 and buy a $185 put, you have the right to sell at $185 no matter how far the stock drops. Your maximum loss is capped.
Buying vs. Selling
When you buy an option (call or put), you pay the premium and have limited risk — the most you can lose is the premium paid. When you sell an option, you collect the premium but take on obligation. Sellers profit when options expire worthless, but face potentially large losses if the market moves against them.
Key Terms
Call — The right to buy stock at the strike price
Put — The right to sell stock at the strike price
Long — Buying an option (paying premium)
Short — Selling an option (collecting premium)