Options basics

Calls vs. puts, explained.

4 min read · Updated Oct 11, 2026 · Education only

Every options alert starts with one basic choice: call or put. Understanding the difference, and how each one gains and loses value, is the foundation for everything else in options. This guide covers buying calls and puts, the most common starting point, using simple numbers.

The call option

A call gives its buyer the right to buy 100 shares of the underlying at the strike price, until expiration. Buyers of calls generally expect the underlying to rise.

Illustrative example. A stock trades at $100. A call with a $105 strike expiring in a month costs $2.00 per share, or $200 per contract.

• If the stock is at $112 at expiration, the call is worth $7.00 (the $112 price minus the $105 strike), or $700. After the $200 cost, the outcome is +$500 before fees.
• If the stock is at $106 at expiration, the call is worth $1.00, or $100. The outcome is −$100, even though the stock rose.
• If the stock is at or below $105 at expiration, the call expires worthless. The outcome is −$200, the full premium.

The break-even at expiration for a long call is the strike plus the premium: $105 + $2 = $107.

The put option

A put gives its buyer the right to sell 100 shares at the strike price, until expiration. Buyers of puts generally expect the underlying to fall, or want to protect shares they already own.

Illustrative example. The same $100 stock. A put with a $95 strike costs $1.80, or $180 per contract.

• If the stock is at $88 at expiration, the put is worth $7.00, or $700. After the $180 cost, the outcome is +$520 before fees.
• If the stock is at or above $95 at expiration, the put expires worthless and the outcome is −$180.

The break-even at expiration for a long put is the strike minus the premium: $95 − $1.80 = $93.20.

Side by side

Intrinsic value and time value

Before expiration, an option's premium has two parts:

• Intrinsic value is what the option would be worth if exercised right now. A $95 call on a $100 stock has $5 of intrinsic value. An out-of-the-money option has none.
• Time value (also called extrinsic value) is everything above intrinsic value. It reflects the chance that the option becomes more valuable before expiration, and it depends on the time left and on implied volatility.

Time value shrinks as expiration approaches and reaches zero at expiration. That is why buying options requires being right about direction and timing, and why same-day 0DTE options are so sensitive: they have almost no time left. The rate of this decay is measured by theta, one of the options Greeks.

Exercise, assignment and closing early

Most retail option buyers never exercise. Instead they close the position by selling the option back in the market before expiration, which captures any remaining time value. Exercising a call means actually buying 100 shares at the strike, which requires the cash or margin to do so.

Options on US stocks and ETFs are generally American-style, meaning they can be exercised any time before expiration. Many index options, such as those on the S&P 500 index, are European-style and cash-settled. Check your broker's rules on automatic exercise at expiration, since in-the-money options are often exercised automatically.

What about selling options?

This guide covers buying. Selling (writing) options reverses the picture: the seller collects the premium but takes on an obligation, and the potential loss can be far larger than the premium received, unlimited in the case of an uncovered call. Selling options typically requires a higher options approval level from your broker and is beyond the scope of a beginner guide.

How this connects to alerts

When an alert names a call or a put, it is describing a view on direction within a time window. The strike and expiration describe how far and how fast the move needs to be. Our guide to reading an options alert puts these pieces together with entry, stop and target levels.

Key risks to remember

• Buyers can lose 100% of the premium, and many short-dated out-of-the-money options expire worthless.
• Being right about direction is not enough if the move comes too late or is too small.
• Leverage cuts both ways: percentage moves in options are usually much larger than in the stock.

Read the Characteristics and Risks of Standardized Options booklet from the Options Clearing Corporation before trading options, and see our Risk Disclaimer.