Calls vs Puts Explained
Learn the difference between call and put options with examples
Call Options - Betting on Price Increases
When to Use Call Options
- • You believe a stock will go UP in price
- • You want to control more shares with less capital
- • You want limited risk (can only lose premium paid)
- • You want unlimited profit potential
Example: Tesla Call Option
Current Price: Tesla at $200
Your Trade: Buy $210 Call for $5
Expiration: 30 days
Breakeven: $215 ($210 + $5)
Profit/Loss Scenarios
Tesla at $225: +$10 profit
Tesla at $220: +$5 profit
Tesla at $215: Break even
Tesla at $200: -$5 loss
Put Options - Betting on Price Decreases
When to Use Put Options
- • You believe a stock will go DOWN in price
- • You want to protect your stock positions (insurance)
- • You want to profit from market declines
- • You want limited risk with high profit potential
Example: Netflix Put Option
Current Price: Netflix at $400
Your Trade: Buy $390 Put for $8
Expiration: 45 days
Breakeven: $382 ($390 - $8)
Profit/Loss Scenarios
Netflix at $360: +$22 profit
Netflix at $370: +$12 profit
Netflix at $382: Break even
Netflix at $400: -$8 loss
Side-by-Side Comparison
| Aspect | Call Options | Put Options |
|---|---|---|
| Market Outlook | Bullish (expect price to rise) | Bearish (expect price to fall) |
| Right to | BUY the stock | SELL the stock |
| Profit when | Stock price goes above strike + premium | Stock price goes below strike - premium |
| Maximum Loss | Premium paid | Premium paid |
| Maximum Profit | Unlimited | Strike price - premium (if stock goes to $0) |
Quick Quiz
If you think Apple stock will rise from $150 to $165, which option should you buy?
Lesson Complete!
Excellent! You now understand the fundamental difference between calls and puts. Next, we'll learn the essential terminology every options trader needs to know.