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.

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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

Position	Market View	Maximum Profit	Maximum Loss	Risk Level
Buy Call	Bullish	Unlimited	Limited (Premium Paid)	Low
Sell Call	Bearish	Limited (Premium Received)	Unlimited	High
Buy Put	Bearish	Almost Unlimited	Limited (Premium Paid)	Low
Sell Put	Bullish	Limited (Premium Received)	Unlimited	High

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.

Understanding types of options trades — buying/selling calls and puts — is critical for mastering options trading. Here’s a clear, real-world view of how these four core option trades work:

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Basic Option Terms (Quick Refresher)

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The 4 Core Option Trades

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REAL-VIEW EXAMPLES

1⃣ Buying a Call (Bullish View)

You believe Reliance stock (₹2,500) will go up soon.

• Buy Call Option ₹2,500 strike @ ₹50 premium

• Break-even = ₹2,550

• If stock goes to ₹2,600:

  • Intrinsic value = ₹100

  • Profit = ₹100 – ₹50 = ₹50 per share

Used when you expect a rise with limited risk.

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2⃣ Selling a Call (Bearish / Neutral View)

You think Reliance will not go above ₹2,500

• Sell Call Option ₹2,500 strike @ ₹50 premium

• If stock stays at ₹2,450:

  • You keep entire ₹50 premium

• But if stock goes to ₹2,600:

  • You lose ₹100 – ₹50 = ₹50 per share

Used to earn premium, but has unlimited risk if stock rises.

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3⃣ Buying a Put (Bearish View)

You think Nifty (₹22,000) will fall.

• Buy Put Option ₹22,000 strike @ ₹100 premium

• If Nifty drops to ₹21,500:

  • Intrinsic value = ₹500

  • Profit = ₹500 – ₹100 = ₹400

Limited risk, high reward if market drops.

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4⃣ Selling a Put (Bullish / Neutral View)

You think Nifty will stay above ₹22,000.

• Sell Put Option ₹22,000 strike @ ₹100 premium

• If Nifty stays at ₹22,300:

  • You keep full ₹100 premium

• If Nifty falls to ₹21,700:

  • You lose ₹300 – ₹100 = ₹200

Used to earn income, but carries risk if market drops.

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Summary Table

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Tips for Traders

• Beginners: Stick to buying calls/puts (limited risk)

• Advanced: Use selling strategies with hedging (spreads)

• Always watch Greeks: Delta, Theta (time decay), Vega (volatility)

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

Chapter 9: Options in banking and financial markets

Options Theory for Professional Trading