Difference between Call Options and Put Options

There are two types of options:

  • A call option gives you the right, but not obligation, to buy the underlying asset.
  • A put option gives you the right, but not obligation, to sell the underlying asset.

This page explains their differences and how each works in long and short option trades (note that call is not the same as long, and put is not the same as short).

Four Basic Option Trades

Besides two types of options, there are two sides to every option trade: you can buy an option, or you can sell an option.

Therefore, the are four things you can do with options:

Buying a call option is not the same thing as selling a put option, and buying a put is different from selling a call. These positions are all very different. They differ in two dimensions:

  • Whether you buy or sell the underlying asset.
  • Whether you have the right (but not obligation) or obligation (but not right).

Call Option Buyer and Seller Positions

While a call option buyer gets the right, but not obligation, to buy the underlying asset at the option's strike price, the call option seller (the other party of the option trade) takes an obligation to sell the underlying asset to the call option buyer if the buyer chooses to exercise the option.

While an option buyer has a right but not obligation, an option seller has the opposite position: obligation but not right. The option seller's outcome depends on the option buyer's will.

Put Option Buyer and Seller Positions

A put option buyer has the right, but not obligation to sell the underlying asset for the strike price, while the put option seller has the obligation to buy the underlying asset from the put option buyer, if the option buyer chooses to exercise the option.

Overview

If the above seems confusing, remember there are two different securities involved: the option and the underlying security.

Here is a summary:

  • Call option buyer has right to buy underlying.
  • Call option seller has obligation to sell underlying.
  • Put option buyer has right to sell underlying.
  • Put option seller has obligation to buy underlying.

Remember:

  • Option buyers have right.
  • Option sellers have obligation.
  • With call options, direction is the same for the option and the underlying (call buyer buys underlying, call seller sells underlying).
  • With put options, direction is opposite (put buyer sells underlying, put seller buys underlying).

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