In financial markets, options contracts are divided into two fundamental categories: Call Options (CE) and Put Options (PE). Understanding how these two instruments function is essential for analyzing option chains.
1. Call Options (CE - Call European)
A Call option grants the buyer the right—without obligation—to purchase an underlying asset at a specified strike price on or before expiry.
- Call Buyer: Pays premium upfront. Profits if underlying price moves above Strike Price + Premium Paid. Maximum loss is capped at premium paid.
- Call Writer (Seller): Receives premium upfront. Incurs obligations to deliver underlying if exercised. Profit is capped at premium received; risk is unlimited unless hedged.
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2. Put Options (PE - Put European)
A Put option grants the buyer the right—without obligation—to sell an underlying asset at a specified strike price on or before expiry.
- Put Buyer: Pays premium upfront. Profits if underlying price falls below Strike Price - Premium Paid. Maximum loss is capped at premium paid.
- Put Writer (Seller): Receives premium upfront. Incurs obligation to buy underlying at strike if exercised. Profit is capped at premium received.
Moneyness Categories (ITM, ATM, OTM)
- In-The-Money (ITM): Call strike < Spot price OR Put strike > Spot price.
- At-The-Money (ATM): Call or Put strike ≈ Current Spot price.
- Out-Of-The-Money (OTM): Call strike > Spot price OR Put strike < Spot price.
Explore options tools: Call & Put Analysis Hub →