If you are just starting out with options trading, you have likely seen terms like calls, puts, strike price, premium, and expiry. While these might seem confusing at first, they are actually easy to grasp once you know what each one means.
Options trading mainly involves two types of contracts: call options and put options. A call lets the buyer buy an asset at a set price, while a put lets the buyer sell it. The buyer pays a premium for this right but does not have to use it.
Now, let’s see how calls and puts work in the Indian market.
Table of Contents
What Are Calls and Puts?
Options are contracts whose value depends on another asset, like a stock or a market index.
There are two basic types:
- Call option: Right to buy
- Put option: Right to sell
A simple way to remember this is:
Call = Buy
Put = Sell
If a trader buys a call, they usually think the price will go up. If they buy a put, they expect the price to go down.
But the market’s direction is just one factor. Things like the strike price, premium, expiry, and other details also affect how an options trade turns out.
What Is a Call Option?
Suppose a stock is trading at ₹1,000 and you expect its price to riseYou might look at a call option with a strike price of ₹1,050 and pay a premium to buy it.t.
If the stock goes up, your call option could become more valuable. If it doesn’t, the option might lose value or even expire worthless.
It’s important to remember that buying a call does not mean you own the stock. You are buying a contract that gives you the right to buy the stock at the strike price, based on the contract’s terms.
SEBI defines a call option as a contract giving the buyer the right, but not the obligation, to buy the underlying asset at a predetermined price.
What Is a Put Option?
A put works in the opposite direction.
Suppose the same stock is trading at ₹1,000, but you expect its price to fall. You could consider a put option with a strike price of ₹950.
You pay a premium for the put. If the stock price falls, your put option could become more valuable. If it doesn’t, the option might lose value.
A put gives the buyer the right, but not the obligation, to sell the underlying asset at the agreed strike price.
ThThat’s why calls are linked to a bullish view and puts to a bearish view of the market.all vs Put: What's the Difference?
| Feature | Call Option | Put Option |
|---|---|---|
| Right given to buyer | Buy | Sell |
| General market view | Bullish | Bearish |
| Buyer pays | Premium | Premium |
| Important price | Strike price | Strike price |
| Expiry | Yes | Yes |
This is the main difference between calls and puts. Whether you make a profit depends on several other factors.
What Is a Strike Price?
The strike price is the predetermined price at which the option buyer has the right to buy or sell the underlying asset.
For example, if an index is trading around 25,000, an option chain may show strikes such as 24,800, 24,900, 25,000, 25,100 and 25,200.
Each strike represents a different option contract.
An option chain lets traders compare calls and puts at different strike prices and expiry dates. It also shows details like premium, volume, and open interest.
For beginners, the easiest way to approach an option chain is to first understand the relationship between:
Underlying price → Strike price → Premium
What Is an Option Premium?
The option premium is the amount paid by the buyer to purchase the option.
For example, if an option has a premium of ₹40 and the lot size is 50, the premium value would be:
₹40 × 50 = ₹2,000
Brokerage, taxes, exchange charges and other applicable costs may be additional.
The premium can change during the life of the contract. Factors including the underlying price, time remaining and market volatility can influence its value.
Why Does Expiry Matter?
Unlike a stock that can generally be held for an extended period, an option has a fixed expiry date.
This makes timing particularly important.
Imagine buying a call because you expect a stock to rise. If the expected movement does not happen before the relevant expiry, the option may lose value or expire worthless.
This means an options trader needs to consider not just which direction the market may move, but also when that move may happen.
Why Do Traders Use Calls and Puts?
Calls and puts can be used for different strategies.
A trader may buy a call when expecting an upward move or a put when expecting a downward move. Options can also be used for hedging, where an investor attempts to reduce the impact of an adverse price movement on an existing position.
However, options are not risk-free instruments.
Premiums can decline quickly, markets can move unexpectedly and factors such as volatility and time decay can affect an option's value.
Option writing also has a different risk profile from option buying and can involve substantial losses. SEBI has highlighted the risks associated with derivatives trading.
Calls and Puts in India's F&O Market
In India, options form part of the Futures and Options (F&O) segment of the derivatives market.
A trading platform may provide access to option chains, charts and other market information. But having access to these tools does not replace the need to understand the contract.
Before placing an options order, a beginner should check:
- Underlying asset
- Call or put
- Strike price
- Premium
- Expiry
- Lot size
- Applicable charges
- Potential risk
Taking a few minutes to understand these details can help you avoid entering a position simply because of a price tip or market rumour.
Explore F&O Trading With Dhanush by Ashika
Once you understand calls and puts, you can start exploring the tools used to study the F&O market.
Dhanush by Ashika provides digital access to trading and investment services, including F&O trading, subject to applicable account requirements and eligibility.
Investors can use the platform to access available market and trading facilities after completing the required account-opening and KYC processes.
But the platform is only the tool. Understanding the contract remains the investor's responsibility.
Before placing an options trade, look at the strike price, premium, expiry and lot size, and understand the potential risk involved.
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A Simple Way to Remember Calls and Puts
Starting with options trading does not require memorising complicated terminology all at once.
Begin with these two lines:
Call → Right to Buy → Generally associated with a bullish view
Put → Right to Sell → Generally associated with a bearish view
Then remember:
Strike. Premium. Expiry.
Once these basics are clear, an option chain becomes easier to understand.
Options can be useful in different trading and hedging strategies, but they also involve significant risk. For a beginner, learning how the contract works should come before taking a position.
Explore the markets with Dhanush by Ashika — and make understanding the trade your first step.
Frequently Asked Questions
What is the main difference between a call and a put option?
A call option gives the buyer the right to buy an underlying asset at a predetermined strike price. A put option gives the buyer the right to sell it.
When do traders buy call options?
Traders generally buy call options when they expect the underlying asset's price to rise. The option's value also depends on factors such as its strike price, premium, expiry and market volatility.
When do traders buy put options?
Traders generally buy put options when they expect the underlying asset's price to fall. Puts can also be used to hedge an existing investment against potential losses.
What is an option premium, and how is it calculated?
The premium is the price paid to buy an option contract. For example, a premium of ₹40 with a lot size of 50 results in a total premium of ₹2,000, excluding applicable charges.
Can an options buyer lose the entire premium?
Yes. If an option expires worthless, the buyer may lose the entire premium paid, along with applicable transaction costs. Options trading involves significant risk.
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