What is a call option?

A call option represents the right (but not the requirement) to purchase 100 shares of stock at a pre-determined 'strike price' before an expiration date. If the stock price rises above the strike price, you can sell the options contract for a profit.

What is a put option?

A put option represents the right (but not the requirement) to sell a set number of shares of stock (at a pre-determined "strike price" before an expiration date. If the stock drops below the strike price, you can sell the options contract for a profit.

Call vs. Put Options: What's the Difference?

Here's a full rundown of call options, put options, and how you can make money with them.

By Lyle Daly – Updated May 11, 2026 at 4:29 PM EST | Fact-checked by Frank Bass

Key Points

Call options grant the right to buy stocks at a set price until expiration; puts allow selling.
Options expire worthless if stock doesn't reach breakeven, risking the premium paid.
Selling options can yield profits but exposes sellers to potentially large losses.

If you're interested in options trading, one of the first things to learn is the difference between call options and put options. You'll see these terms used frequently, so understanding them is a must.

An infographic showing the difference between a call and a put in options trading — Image source: The Motley Fool

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A call option is the right to buy a stock at a specific price by an expiration date, and a put option is the right to sell a stock at a specific price by an expiration date. That's the summary. Now, let's take a closer look at how call and put options work, as well as the risks involved with options trading.

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How does a call option work?

A call option is a contract tied to a stock. You pay a fee, called a premium, for the contract. That gives you the right to buy 100 shares of the stock at a set price, known as the strike price, at any point until the contract's expiration date.

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Strike Price

A strike price is the price in an options contract at which the underlying asset can be bought or sold.

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You're not obligated to execute the option. If the stock price increases enough, you can exercise it or sell the contract for a profit. If it doesn't, then you can let the contract expire and only lose the premium you paid. You could also sell before expiration for a lower price than what you paid.

The breakeven point on a call option is the sum of the strike price and the premium. When you have a call option, you can calculate your profit or loss at any point by subtracting the current price from the breakeven point.

Example of a call option

Let's say you're bullish on a stock that's trading at $150 per share. You buy a call option with a strike price of $170 that expires in six months, and it costs a premium of $15 per share. Since options contracts cover 100 shares, the total cost would be $1,500.

The breakeven point would be $185 (the $170 strike price plus the $15 premium). If the share price increases to $195, your profit would be $10 per share, totaling $1,000.

How does a put option work?

A put option is a contract tied to a stock. You pay a premium for the contract, giving you the right to sell 100 shares of the stock at the strike price. You can execute the contract at any time until its expiration date.

If the price of the stock decreases enough, then you can sell your put option for a profit. You're not obligated to execute the contract, so if the asset's price doesn't drop enough, you can let it expire.

The breakeven point on a put option is the difference between the strike price and the premium. When you have a put option, you can calculate your profit or loss at any point by subtracting the breakeven point from the current price.

Example of a put option

Imagine a stock trades at $500 per share, and you think it's overvalued. You buy a put option with a strike price of $450 and an expiration date 12 months away. The premium is $10 per share, for a total of $1,000 for the put option.

The breakeven point would be $440, the difference between the $450 strike price and the $10 premium. If the stock plummets to $400, then you're up $40 per share ($4,000 total) on your put option. If it doesn't drop below $450 at all, you'd either need to sell at a loss before the option expires or let it expire and eat the premium.

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Risks of call options vs. put options

The risk of buying both call and put options is that they expire worthless because the stock doesn't reach the breakeven point. In that case, you lose the amount you paid for the premium.

It's also possible to sell call and put options, which means another party would pay you a premium for an options contract. The risk of selling options is that you're responsible for fulfilling the contract. That means you'd need to:

Sell 100 shares of the stock at the strike price if you sold a call option.
Buy 100 shares of the stock at the strike price if you sold a put option.

Buying and selling options carry different risks. There tends to be more risk of losing money when you buy options, but the most you can lose is what you paid for the contract. Selling options usually has a higher probability of profit, but losses can be much greater.

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Buying options vs. investing in stocks

Options can be riskier than buying and selling stocks because there's a greater possibility of coming away with nothing. When investing in stocks, you only need to predict whether the stock goes up or down, and there's no time limit to get it right. For options trading, you need to predict three things correctly:

The direction the stock will move.
The amount the stock will move.
The time period of the stock movement.

If you're wrong about any of those, then the options contract will be worthless. While there's the potential for greater returns with options, they're also harder to trade successfully.

Despite the challenges of trading call and put options, they offer an opportunity to amplify your returns. That can make them a valuable addition to a balanced portfolio. For investors interested in options, there are also more advanced strategies that go beyond buying or selling calls and puts.

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FAQs

Call vs. put options FAQs

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About the Author

Lyle Daly is a contributing Motley Fool stock market analyst covering information technology and cryptocurrency. Lyle has been a contributor at the financial services company since 2018. His work has been featured on USA Today, Yahoo Finance, MSN, Fox Business, and Nasdaq. Before joining The Motley Fool, he wrote for financial brands including Intuit.

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@LyleDaly

Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Netflix. The Motley Fool has a disclosure policy.

Call vs. Put Options

Here's a full rundown of call options, put options, and how you can make money with them.

Key Points