What is the difference between call and put options?

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Call options and put options come with different features that you can use to your advantage.

Transcript

What is the difference between call and put options? To begin with, the investor expectations differ. In a call option, the contract buyer expects the price of the asset to rise. But in a put option, the contract buyer expects the price of the asset to fall. What about the profits in each case? Well, in a call option, we calculate the profit as the market price minus the strike price minus the premium. Here, since the rise in the asset’s market price cannot be capped, the gains can potentially be unlimited. In a put option, we calculate the profit as the strike price minus the market price minus the premium. Here, since the market price cannot fall below zero, the gains are limited. So, that brings us to the end of the whole call vs. put option discussion. But how do you go about trading these options? Head to the next chapter on Smart Money to discover some options trading strategies.

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