Calls & Puts
Buying and Selling Explained
Calls and puts are the two basic types of option contracts. Understanding the difference between buying and selling each one gives you the foundation for understanding many options strategies.
01 · The Foundation
Two Contracts. Four Positions.
There are two basic option contracts: calls and puts. But each contract can either be bought or sold.
Buy a Call
Bullish
You generally want the stock price to move higher.
Sell a Call
Neutral / Bearish
You collect premium and may have to sell shares.
Buy a Put
Bearish
You generally want the stock price to move lower.
Sell a Put
Neutral / Bullish
You collect premium and may have to buy shares.
02 · Buyer vs. Seller
Rights vs. Obligations
Option Buyer
The buyer pays premium and receives a right.
Option Seller
The seller collects premium and takes on an obligation.
This difference is extremely important. Buying an option and selling an option create very different responsibilities.
03 · Call Options
What Is a Call?
A call option gives the buyer the right to buy shares at the strike price.
Buy a Call
You want the stock to go up.
You pay premium.
You receive the right to buy shares.
Sell a Call
You collect premium.
You may have to sell shares.
Often used with a neutral or bearish outlook.
04 · Example
Buying a Call
A call buyer usually wants the stock price to move higher. If the stock rises enough, the call may increase in value.
05 · Example
Selling a Call
A call seller collects premium. If the stock rises above the strike price, the seller may have to sell shares at that strike.
06 · Put Options
What Is a Put?
A put option gives the buyer the right to sell shares at the strike price.
Buy a Put
You want the stock to go down.
You pay premium.
You receive the right to sell shares.
Sell a Put
You collect premium.
You may have to buy shares.
Often used with a neutral or bullish outlook.
07 · Example
Buying a Put
A put buyer usually wants the stock price to move lower. If the stock falls enough, the put may increase in value.
08 · Example
Selling a Put
A put seller collects premium. If the stock falls below the strike price, the seller may have to buy shares at that strike.
09 · Quick Guide
Simple Direction Guide
Buy Call
Want stock UP
Sell Call
Want stock below strike
Buy Put
Want stock DOWN
Sell Put
Want stock above strike
Important Beginner Reminder
Understand the Risk Before Trading
Buying options can result in losing the full premium paid.
Selling options can create assignment risk.
Premium is not free money.
Always understand the obligation before selling an option.
10 · Quick Recap
What You Should Remember
Call = right to buy
Put = right to sell
Buyer pays premium
Seller collects premium
Call sellers may have to sell shares
Put sellers may have to buy shares
Video Lesson
Calls & Puts — Buying and Selling Explained
Watch the supporting OptionEdge video for a visual walkthrough of buying and selling calls and puts.
Watch on YouTubeContinue Learning
Ready to Learn an Income Strategy?
Now that you understand calls, puts, buyers, and sellers, continue with Cash-Secured Puts to see how selling a put can be used as an options income strategy.
Learn Cash-Secured PutsEducational Disclaimer: This lesson is for educational purposes only. Nothing on this page is financial, investment, tax, or legal advice. Options involve risk and may not be suitable for every investor.