Call and put

A call is an option that gives the right to buy an asset at a set price (the strike); a put gives the right to sell it at that price. The buyer pays a premium for that right.

How it works

An option is a contract with an expiry date. A call buyer wins if the price ends up above the strike at expiry, a put buyer if it ends up below. The right does not have to be used: if the option is worthless, it simply expires and the buyer loses only the premium paid.

On the other side is the seller (writer). They collect the premium up front but take on an obligation. A call seller's risk is in theory unlimited, since price can keep rising. A put seller can lose close to the full value of the asset at the strike.

Traders buy calls when they expect a rise and puts when they expect a drop or want to protect something they hold. A put on BTC you already own works like insurance: if the price crashes, the gain on the put offsets part of the loss. An option needs the right direction and the move has to happen before expiry.

Example with numbers 1

A call on 1 BTC with a $60,000 strike costs $1,500. At expiry BTC is $66,000: the option is worth $6,000, a $4,500 profit. If BTC is below $60,000, the call expires worthless and you lose $1,500. Breakeven is $61,500.

Example with numbers 2

A put on 1 ETH with a $3,000 strike costs $120. ETH falls to $2,600: the put is worth $400, a $280 profit. If ETH stays above $3,000, you lose $120.

Common mistake

A common mistake is buying cheap calls far from the current price hoping for a 10x. They are cheap because they almost always expire worthless: price has to move a long way in your direction before expiry, not just move your way. Work out breakeven (strike plus premium for a call, strike minus premium for a put) and treat the whole premium as money you can lose.

Questions and answers

What are calls and puts in simple terms?

A call is a bet on a rise with the right to buy at a fixed price, a put is a bet on a fall with the right to sell at a fixed price. The buyer pays a premium and cannot lose more than that.

How is buying a call different from going long on futures?

With futures your loss grows as price falls and can end in liquidation. With a bought call the maximum loss is known in advance, it is the premium, but time works against you.

Can I sell an option before expiry?

Yes, on most venues you can close an option at any time at its current market price. That is how traders lock in profit or cut a loss without waiting for expiry.

Call and put

How it works

Questions and answers

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