what is call and put in stock market: Guide

Call and Put (Options) in the Stock Market

This article explains what is call and put in stock market in clear, beginner-friendly terms and shows how calls and puts are used for speculation, hedging, and income. You will learn the contract components, payoff math, common strategies, pricing drivers (intrinsic vs. extrinsic value and implied volatility), the Greeks, exercise and settlement rules, and practical example scenarios. By the end, you’ll better understand how options fit into portfolios and where to learn more — including how to explore derivatives on Bitget and Bitget Wallet for secure access to options-style products.

As of Dec 30, 2025, according to aggregated market reports, the three primary U.S. equity benchmarks closed lower on a cautious trading day (S&P 500 -0.35%, Nasdaq Composite -0.50%, Dow Jones Industrial Average -0.51%), with trading volume near its 30-day average and options-market indicators showing balanced put-call flows and a moderately higher VIX. This market backdrop is useful when learning options because macro moves, volatility, and sector rotations directly affect option prices and strategy choice.

Definition and basic principles

An options contract is a standardized derivative that gives its buyer the right, but not the obligation, to buy or sell an underlying asset at a specified strike price on or before a specified expiration date. In U.S. equity markets the two basic option types are calls and puts. Repeat for clarity: options transfer rights, not obligations, unless the holder exercises; sellers (writers) have the obligation if assigned.

• A call option gives the holder the right to buy the underlying asset at the strike price by or at expiration. A call is typically used when the buyer expects the underlying price to rise.
• A put option gives the holder the right to sell the underlying asset at the strike price by or at expiration. A put is typically used when the buyer expects the underlying price to fall or wants downside protection.

Throughout this article we will repeatedly answer what is call and put in stock market contexts and provide practical examples that illustrate profit and loss outcomes for both buyers and sellers.

Key terms and contract components

Understanding option terminology is essential. Below are the principal contract components you will encounter:

• Strike price: the fixed price at which the call buyer can buy (or the put buyer can sell) the underlying asset.
• Expiration date: the date on which the option expires; for American-style options the holder may exercise any time up to expiration, for European-style only at expiration.
• Premium: the option price paid by the buyer to the seller; quoted on a per-share basis but sold in contracts (commonly one options contract = 100 shares for many U.S. equity options).
• Contract size / lot size: standard U.S. equity options usually represent 100 shares per contract; index options or minis may differ by exchange.
• Holder (buyer) and writer (seller): the buyer pays the premium and receives the right; the writer receives the premium but assumes the obligation if assigned.

Keep in mind that margin, settlement, and exercise rules vary by product and exchange. For U.S. equity options, contract conventions like 100 shares per contract are standard but always confirm with your broker.

In-the-money, at-the-money, out-of-the-money

• In-the-money (ITM): A call is ITM when the underlying price > strike; a put is ITM when the underlying price < strike. ITM options have intrinsic value.
• At-the-money (ATM): The underlying price is approximately equal to the strike price; ATM options have minimal intrinsic value and typically the largest time value.
• Out-of-the-money (OTM): A call is OTM when the underlying price < strike; a put is OTM when the underlying price > strike. OTM options have no intrinsic value and are priced entirely with extrinsic (time) value.

Intrinsic value = max(0, underlying price − strike) for a call, max(0, strike − underlying price) for a put. Extrinsic value = premium − intrinsic value; it reflects time value, implied volatility, and interest-rate effects.

American vs. European-style options

• American-style options: Can be exercised any time up to expiration. Most U.S. equity options are American-style, which affects early-exercise considerations (especially for dividend-paying stocks).
• European-style options: Can be exercised only at expiration. Many index and currency options use European-style settlement.

Understanding style matters for strategy design and for expectations about early assignment if you write options.

Call options — mechanics and uses

A call option buyer pays the premium for the right to purchase the underlying at the strike. The call writer receives the premium and takes on the obligation to sell the underlying at the strike if assigned.

When would an investor buy a call?

• Bullish speculation: to capture upside with limited cash outlay (premium) and limited downside equal to premium paid.
• Stock substitution: buying calls instead of owning shares for leverage or capital efficiency.
• To create spreads that cap risk and reward.

When would an investor write (sell) calls?

• Covered call writing: own the underlying and write calls to generate income (collecting premium); downside exposure still exists if the stock falls, but premium cushions losses.
• Naked (uncovered) call writing: sell calls without owning the underlying — carries potentially unlimited risk on strong upside moves and is an advanced, high-risk tactic.

Call payoff and profit/loss profiles

Payoff at expiration (call buyer): max(0, S_T − K) where S_T is the underlying price at expiration and K is the strike.

Profit (call buyer) = max(0, S_T − K) − premium paid.

Breakeven for a long call = strike + premium. For the call writer (short call), profit = premium received − max(0, S_T − K) and breakeven = strike + premium (in reverse sign sense: above that point the writer loses).

Important practical note: Buyers have limited loss (the premium). Writers, depending on whether they are covered, may face large losses (naked call writers face theoretically unlimited losses as the underlying can rise without bound).

Common call strategies

• Long call: Buy a call expecting the underlying to rise. Low capital outlay, limited loss.
• Covered call: Own stock + write calls against it to earn income; caps upside to the strike if assigned.
• Call spread (bull call spread): Buy a call and sell a higher-strike call to reduce premium outlay and define maximum profit.
• Collar: Own stock, buy a protective put, and sell a call to offset the put cost — used to limit downside at the expense of capping upside.

Each strategy trades off risk, reward, cost, and complexity.

Put options — mechanics and uses

A put option buyer pays the premium for the right to sell the underlying at the strike. The put writer receives the premium and is obligated to buy the underlying at the strike if assigned.

When would an investor buy a put?

• Bearish speculation: to profit from a fall in the underlying price with limited downside equal to the premium.
• Hedging (protective put): to limit downside on an owned stock position, effectively an insurance policy.

When would an investor write puts?

• Cash-secured put selling: sell puts while holding enough cash to buy the underlying at the strike if assigned; this can be used to potentially acquire a stock at a discount (effective purchase price = strike − premium received).
• Naked put writing: sell puts without cash backing; exposes the writer to substantial downside if the underlying collapses.

Put payoff and profit/loss profiles

Payoff at expiration (put buyer): max(0, K − S_T).

Profit (put buyer) = max(0, K − S_T) − premium paid.

Breakeven for a long put = strike − premium. For the put writer, profit = premium received − max(0, K − S_T); the put writer’s breakeven equals strike − premium.

Buyers cap loss at the premium. Put writers can face large losses if the underlying collapses — the maximum loss for a short put is the strike minus premium (if underlying goes to zero), which can be substantial.

Common put strategies

• Long put (protective put if paired with a long stock): limits downside.
• Cash-secured put: generate income and set up a potential purchase at a discounted price.
• Put spread (bear put spread): buy a put and sell a lower-strike put to reduce cost but limit upside.
• Synthetic positing: combine options to synthetically recreate stock or other exposures.

Option pricing basics

Options are priced from two components: intrinsic value and extrinsic (time) value.

• Intrinsic value: the immediate exercise value (if ITM). For calls max(0, S − K); for puts max(0, K − S).
• Extrinsic value (time value): premium minus intrinsic value; driven by time until expiration, implied volatility (IV), interest rates, and dividends.

Key drivers:

• Time to expiration: more time usually increases extrinsic value because there is more opportunity for the underlying to move.
• Volatility: higher expected future volatility raises IV and option premiums because the chance of large moves increases the option’s expected payoff.
• Interest rates and dividends: affect carry costs and early exercise incentives (dividends can make early exercise of American calls optimal occasionally).

The Greeks — risk sensitivities

The Greeks measure how option prices change with different market factors. Familiarity with the major Greeks helps traders manage positions:

• Delta (Δ): the sensitivity of an option’s price to a small change in the underlying’s price. Call deltas range 0 to +1; put deltas range −1 to 0. Delta can serve as an approximate hedge ratio.
• Gamma (Γ): the rate of change of delta with respect to the underlying price. Gamma is highest for ATM options and for short-dated options.
• Theta (Θ): time decay — shows how much an option’s price decreases as time passes, all else equal. Buyers lose theta; sellers gain theta.
• Vega (ν): sensitivity of option price to implied volatility. Long options benefit from higher IV; short options lose from IV spikes.
• Rho (ρ): sensitivity to interest rates; typically small for short-dated equity options but becomes relevant for longer-dated options.

Implied volatility and its importance

Implied volatility (IV) is the market’s consensus estimate of future volatility, implied by observed option prices using a pricing model (e.g., Black–Scholes for plain-vanilla European-style options). IV is not a forecast of direction; it quantifies expected magnitude of moves.

Why IV matters:

• Option premiums increase with IV; buying options in a low-IV environment tends to be cheaper, all else equal.
• Strategy selection depends on IV: in low-IV markets traders may buy volatility (long options); in high-IV markets traders may sell volatility (credit spreads, selling premium) if they expect IV to revert.

Implied volatility surfaces (IV by strike and expiry) help traders pick strikes and expirations with respect to skew and term structure.

Trading mechanics and market infrastructure

Options on U.S. stocks trade on regulated exchanges with standardized contract terms. Key practical elements:

• Quote conventions: option prices are quoted on a per-share basis; multiply by contract size (commonly 100) to get total cost.
• Margin requirements: vary by broker and position type (writing naked options attracts stricter margin rules than covered positions).
• Brokerage approval: brokers require approval levels for options trading based on experience, account type, and risk profile. Approval is typically tiered from basic long calls/puts up to advanced uncovered strategies.

When trading options, confirm the product’s tick size, expiration cycles (monthly, weekly, quarterly), and settlement conventions. If you plan to trade digital assets or options-style derivatives in crypto markets, consider Bitget’s product suite and Bitget Wallet as custodial and non-custodial options to access derivatives in a compliant environment.

Exercise, assignment, and settlement

• Exercise: holder’s action to convert the option into the underlying (buy for call, sell for put) at or before expiration for American-style options.
• Assignment: when a writer must fulfill the obligation; assignment is random among writers with short positions in the same series.
• Automatic exercise: many brokers automatically exercise ITM options at expiration unless instructed otherwise (often set to a minimum ITM threshold like $0.01).
• Settlement types: physical delivery (stock changes hands) vs. cash settlement (cash payment for index options). Verify settlement rules for each product.

Uses in portfolios

Options have several portfolio-level uses:

• Hedging: protective puts or collars provide downside insurance.
• Leverage/speculation: buying calls or puts offers exposure to price moves with limited cash outlay.
• Income generation: covered calls or cash-secured puts can generate premium income.
• Synthetic positions: options can create stock-like exposures or replicate more complex payoffs using combinations (e.g., long call + short put = synthetic long stock, ignoring financing costs).

Options can improve risk-adjusted returns when used thoughtfully, but they also introduce complexities that require experience and risk controls.

Risks and considerations

Major risks to understand before trading options:

• Time decay (theta): long options lose value as expiry approaches if the underlying does not move favorably.
• Volatility risk (vega): unexpected IV increases can hurt short option sellers; IV collapses hurt long option positions.
• Unlimited loss potential for uncovered sellers: naked call sellers face theoretically unlimited upside loss; uncovered put sellers face large downside.
• Liquidity and bid-ask spreads: illiquid strikes or expirations can cost more to enter/exit than theoretical models imply.
• Assignment risk: option writers can be assigned at any time for American options if in-the-money — this risk should be managed.
• Margin requirements: selling options can require substantial margin and may trigger maintenance calls.

Always treat options as tools with both utility and embedded risk. Read official options disclosure documents (e.g., Options Disclosure Document) and consult your broker’s risk materials.

Strategy selection and example scenarios

Below are two short numeric examples — one for a long call and one for a long put — to illustrate payoff and breakeven calculations in a simple, verifiable way.

Example 1 — Buying a call

• Underlying: Stock XYZ currently trading at $50
• Call strike: $55
• Premium: $2.50 per share (one contract = 100 shares ⇒ $250 premium)
• Expiration: one month

At expiration:

• If XYZ = $60: Call intrinsic = $60 − $55 = $5 ⇒ payoff = $5, profit = $5 − $2.50 = $2.50 per share ($250 total).
• If XYZ = $55: Call intrinsic = $0 ⇒ payoff = $0 ⇒ loss = premium = $2.50 per share ($250 total).
• Breakeven at expiration = strike + premium = $55 + $2.50 = $57.50.

This demonstrates limited downside (premium) and unlimited upside in principle.

Example 2 — Buying a put

• Underlying: Stock ABC currently trading at $120
• Put strike: $110
• Premium: $3.00 per share (one contract = $300)
• Expiration: six weeks

At expiration:

• If ABC = $95: Put intrinsic = $110 − $95 = $15 ⇒ payoff = $15 ⇒ profit = $15 − $3 = $12 per share ($1,200 total).
• If ABC = $110: Payoff = $0 ⇒ loss = premium = $3 per share ($300).
• Breakeven at expiration = strike − premium = $110 − $3 = $107.

When might an investor choose each strategy?

• Long call: if they expect a near-term bullish catalyst and prefer limited cash exposure.
• Long put: if they expect a near-term decline or need insurance for a long stock position (protective put).

Note: These are illustrative scenarios only. They show arithmetic of payoffs, not investment advice.

Market indicators and analytics

Options traders and analysts monitor several metrics to gauge market sentiment and liquidity:

• Open interest: total outstanding contracts; higher open interest suggests more liquidity and interest in that strike/expiry.
• Volume: contracts traded in a period; spikes often precede large underlying moves.
• Implied volatility surface: IV by strike and expiry; skew reflects market pricing of tail risk.
• Put-call ratio: total put volume divided by call volume — used as a sentiment indicator (extreme readings can be contrarian signals).

As noted in market summaries dated Dec 30, 2025, options-market measures showed a balanced put-call ratio and a modest VIX increase, consistent with a single-day broad market decline rather than a panic-driven event. That environment affects strategy choice: in measured sell-offs, protective puts or buying calls after volatility pulls back can be considered by experienced traders.

Tax, regulation and account requirements

• Regulatory oversight: option trading and clearing are overseen by exchanges and clearinghouses (for U.S. equity options the Options Clearing Corporation clears contracts). Rules and protections vary by jurisdiction.
• Tax treatment: option taxation differs by country and by transaction type (e.g., short-term capital gains, long-term capital gains, special rules for spreads or covered calls). Always consult tax professionals for jurisdiction-specific guidance.
• Account approval: brokers require options agreement forms and typically grade traders by experience and strategy level. Review disclaimers and margin rules carefully before trading.

History and market participants

Exchange-traded options became standardized in the 1970s and evolved to include a broad array of products (equity, index, ETF, and commodity options). Main participants include:

• Retail traders: use options for speculation, leverage, and hedging.
• Institutional hedgers: use options to manage portfolio risk.
• Market makers: supply liquidity and maintain two-sided markets.
• Clearinghouses: ensure contract settlement and manage counterparty risk.

The Options Clearing Corporation (or equivalent clearing entity in other markets) plays a central role in guaranteeing contract performance.

Further reading and references

Authoritative educational sources for deeper study include broker learning centers and industry organizations that publish options primers and strategy guides. For practical trading and secure custody of crypto-option-like products, consider Bitget and Bitget Wallet for exchange access and wallet management. Always read official options disclosure materials and exchange rulebooks for the specific product series you plan to trade.

Practical notes and current market context (as of Dec 30, 2025)

As of Dec 30, 2025, according to aggregated market reports, the U.S. equity market experienced a single-day broad-based decline (S&P 500 −0.35%, Nasdaq −0.50%, Dow −0.51%) with trading volume near the 30-day average. Options-market measures like the VIX rose moderately but stayed below long-term averages, and the put-call ratio indicated balanced sentiment rather than extreme pessimism. These observable metrics underline two important learning points for option students:

1. Volatility and macro drivers matter: interest-rate outlook, earnings, and macro data can change IV rapidly and therefore option premiums.
2. Measured sell-offs often present opportunities for hedging or for strategic entries when IV is well-understood.

Below is a compact HTML table that summarizes those index moves for quick reference.

S&P 500	-0.35%	+8.2%
Nasdaq Composite	-0.50%	+10.5%
Dow Jones Industrial Average	-0.51%	+5.7%

(Reporting date: Dec 30, 2025, based on aggregated market reports described earlier.)

Frequently asked practical questions

Q: In plain terms, what is call and put in stock market and which one should I learn first? A: For a beginner, understand that a call is the right to buy (bullish) and a put is the right to sell (bearish or protective). Start by learning payoff math, intrinsic/extrinsic value, and the risks of writing versus buying.

Q: How is an option premium quoted? A: Quoted per share (e.g., $2.50); multiply by contract size (usually 100) to get total cost.

Q: What happens if I’m assigned on a written contract? A: If you’re assigned on a short call you must sell (deliver) the underlying at the strike; on a short put you must buy the underlying at the strike. Ensure you understand margin and cash requirements.

Q: Where can I practice before trading real capital? A: Many brokers offer paper trading or simulated accounts. If you trade crypto-derivatives, explore Bitget’s educational resources and Bitget Wallet for secure practice and access to derivatives-like products.

Neutral guidance and risk disclosure

Options are powerful tools but can be complex and risky. This article explains mechanics and examples, not investment recommendations. Do not treat this content as trading advice. Read the official options disclosure documents, consult qualified advisors for tax and legal implications, and ensure you understand margin and assignment risk before trading.

Next steps and resources

If you want to continue learning:

• Study option chains for a liquid stock and watch how premium, IV, and Greeks change intraday.
• Paper-trade simple strategies (long calls, long puts, covered calls) to observe behavior.
• Read broker education (options primers) and the standardized options disclosure document.

To explore derivatives and custodial tools in a compliant environment, consider Bitget’s derivatives suite and Bitget Wallet for custody and secure access to margin and structured products. Always verify your broker’s approval level and read product specifications before trading.

Further study materials include educational centers provided by major brokers and the industry Options Education Council; these sources offer strategy walkthroughs and risk explanations.

Explore more and practice responsibly: the best learning path combines study, simulation, and careful, limited real exposure.

Final note

This guide answered what is call and put in stock market in a detailed, practical way with illustrative examples and neutral market context as of Dec 30, 2025. Options are versatile but require discipline and risk controls. If you’re new, begin with basics, use paper trading, and read official disclosure documents. To access exchange-traded derivatives or derivatives-style products in crypto-friendly environments, consider Bitget and Bitget Wallet as part of your exploration, keeping safety and compliance foremost.