Every options trade begins with a choice between two contract types: calls and puts. Understanding the mechanics and risk profiles of each is essential before placing any trade.

Call Options

A call option gives the buyer the right to buy 100 shares of the underlying asset at the strike price, on or before the expiration date.

Buying a call is a bullish position. You profit when the stock rises above the strike price plus the premium you paid.

  • Risk: Limited to the premium paid.
  • Reward: Theoretically unlimited, because there is no cap on how high a stock can go.

Selling (writing) a call obligates you to sell 100 shares at the strike price if the buyer exercises.

  • Risk: Unlimited if you do not own the underlying shares (a "naked" call). If you already own the shares, it is a covered call and your risk is capped at the stock declining to zero minus the premium received.
  • Reward: Limited to the premium collected.

Put Options

A put option gives the buyer the right to sell 100 shares of the underlying asset at the strike price, on or before the expiration date.

Buying a put is a bearish position, or it can serve as a hedge on shares you own. You profit when the stock falls below the strike price minus the premium you paid.

  • Risk: Limited to the premium paid.
  • Reward: Substantial -- the stock can fall as far as zero, giving the put a maximum intrinsic value equal to the strike price.

Selling (writing) a put obligates you to buy 100 shares at the strike price if the buyer exercises.

  • Risk: Substantial -- the stock could fall to zero, and you would be required to buy at the strike price. Your net loss would be the strike price minus the premium received.
  • Reward: Limited to the premium collected.

Moneyness: ITM, OTM, and ATM

The relationship between the current stock price and the strike price determines an option's moneyness:

Status Call Put
In The Money (ITM) Stock price > strike price Stock price < strike price
Out of The Money (OTM) Stock price < strike price Stock price > strike price
At The Money (ATM) Stock price is approximately equal to the strike price Stock price is approximately equal to the strike price

ITM options have real value if exercised immediately. OTM options do not.

Intrinsic Value vs Time Value

An option's premium is made up of two components:

  • Intrinsic value: The amount by which the option is in the money. A call with a $695 strike when the stock is at $700 has $5.00 of intrinsic value. OTM options have zero intrinsic value.
  • Time value: The portion of the premium above intrinsic value. It reflects the possibility that the option could move further into the money before expiration. Time value decreases as expiration approaches (time decay).

Premium = Intrinsic Value + Time Value

Profit and Loss at a Glance

Long call (buy a call): Maximum loss is the premium paid. Breakeven is the strike price plus the premium. Profit increases as the stock rises above breakeven.

Short call (sell a call): Maximum gain is the premium received. Breakeven is the strike price plus the premium. Losses increase as the stock rises above breakeven.

Long put (buy a put): Maximum loss is the premium paid. Breakeven is the strike price minus the premium. Profit increases as the stock falls below breakeven.

Short put (sell a put): Maximum gain is the premium received. Breakeven is the strike price minus the premium. Losses increase as the stock falls below breakeven.

Important: Assignment and Early Exercise

When you sell (write) an option, you can be assigned at any time before expiration if the option is American-style (which most stock options are). Assignment means the option buyer exercises their right and you must fulfill your obligation — buying shares (if assigned on a short put) or selling shares (if assigned on a short call).

At expiration, in-the-money options are typically exercised automatically by the broker. Before expiration, early assignment can occur — most commonly when a stock goes ex-dividend and deep ITM calls are exercised so the holder captures the dividend. If you sell options on dividend-paying stocks, monitor ex-dividend dates closely.

Where to Find This on Ainvest

  • Option Chain: Calls are displayed on the left side and puts on the right side (web). On mobile, use the Call/Put filter to toggle between them.
  • Strategy Builder: The Bullish tab contains call-based strategies. The Bearish tab contains put-based strategies. Select a strategy to see its P&L diagram and risk metrics.

Try it on Ainvest: View the Option Chain — see real calls and puts side by side with live pricing, Greeks, and expiration dates.

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