Types of calls in option buy call and sell call with buying puts and selling puts real view.

Types of calls in option buy call and sell call with buying puts and selling puts real view.

In options trading, there are four basic types of positions:

1. Buying a Call (Long Call)
2. Selling a Call (Short Call)
3. Buying a Put (Long Put)
4. Selling a Put (Short Put)

Each of these has different risk-reward characteristics. Let’s understand them with real-world views.

1. Buying a Call (Long Call) – Bullish View

• When to use? When you expect the price of a stock to go up.
• Example: Suppose TCS stock is at ₹3500. You buy a call option with a strike price of ₹3600 by paying a premium of ₹50.
• Outcome:
  • If TCS rises to ₹3700, your profit = (₹3700 – ₹3600 – ₹50) = ₹50 per share.
  • If TCS falls or stays below ₹3600, you only lose the premium ₹50.

Low risk, high reward potential
Premium paid is your maximum loss

2. Selling a Call (Short Call) – Bearish View

• When to use? When you expect the stock price to stay neutral or fall.
• Example: Suppose you sell a call option of TCS at ₹3600 and receive a premium of ₹50.
• Outcome:
  • If TCS stays below ₹3600, you keep the ₹50 premium as profit.
  • If TCS rises to ₹3700, you must sell the stock at ₹3600 and buy it at ₹3700 (Loss ₹100 – ₹50 premium = ₹50 per share).

Good for steady markets
Unlimited loss if stock rises too much

3. Buying a Put (Long Put) – Bearish View

• When to use? When you expect the price of a stock to go down.
• Example: Suppose Infosys is at ₹1600. You buy a put option at a strike price of ₹1550 for ₹30.
• Outcome:
  • If Infosys falls to ₹1500, profit = (₹1550 – ₹1500 – ₹30) = ₹20 per share.
  • If Infosys stays above ₹1550, the maximum loss is just the ₹30 premium.

Limited risk, high reward
Premium is lost if price doesn’t fall

4. Selling a Put (Short Put) – Bullish View

• When to use? When you expect the stock to stay neutral or rise.
• Example: You sell a put option of Infosys at ₹1550 and receive ₹30 premium.
• Outcome:
  • If Infosys stays above ₹1550, you keep the ₹30 premium as profit.
  • If Infosys falls to ₹1500, you must buy it at ₹1550 (Loss ₹50 – ₹30 premium = ₹20 per share).

Profitable in a sideways/up market
Unlimited loss if stock crashes

Comparison Table

Conclusion: Which Strategy to Use?

• If bullish → Buy a Call or Sell a Put
• If bearish → Buy a Put or Sell a Call
• If uncertain but expecting high volatility → Buy both Call & Put (Straddle)
• If expecting low volatility → Sell both Call & Put (Strangle)

This practical approach will help you understand how to use options in real trading scenarios.