Puts and calls are the two building blocks of every options trade — and despite the intimidating reputation, you can understand both in about five minutes. This guide explains them in plain English, with real numbers, no jargon, and no finance degree required.
I'm David Jaffee, a former Wall Street investment banker and full-time options trader. I've taught over 3,500 students in 70+ countries, most of whom started exactly where you are: wondering what a put actually is.
Quick Verdict
A call is the right to BUY a stock at a set price. A put is the right to SELL a stock at a set price. Every option has a strike price (the set price) and an expiration date (the deadline).
The part most beginners miss: for every option there's a buyer AND a seller. The buyer pays a premium hoping for a big move; the seller collects that premium and profits when the big move doesn't happen. I trade the seller's side — it's the higher-probability side, and it's the foundation of everything I teach.
What Is an Option? (The 60-Second Version)
An option is a contract between two parties about a stock (or index, ETF, or other asset — called the underlying). One contract covers 100 shares.
Every option has three parts: the underlying asset, the strike price (the pre-agreed price at which shares can be bought or sold), and the expiration date (the deadline for using the contract).
The buyer of an option pays a fee — called the premium — for a right. The seller (also called the writer) collects that premium and takes on an obligation. That buyer/seller distinction is the single most important idea on this page.
Call Options Explained (With Numbers)
A call option gives the buyer the right — but not the obligation — to BUY 100 shares at the strike price, any time before expiration.
Example: a stock trades at $100. You buy a call with a $105 strike for $2 per share ($200 total premium). If the stock jumps to $115, your right to buy at $105 is worth $10 per share — a $1,000 value against your $200 cost. If the stock stays below $105, the call expires worthless and you lose the $200.
The call buyer is betting the stock rises past the strike by more than the premium paid. The call seller collects the $200 and keeps it if that doesn't happen — which, most of the time, it doesn't.
Put Options Explained (With Numbers)
A put option gives the buyer the right — but not the obligation — to SELL 100 shares at the strike price before expiration.
Example: a stock trades at $100. You buy a put with a $95 strike for $2 per share. If the stock crashes to $80, your right to sell at $95 is worth $15 per share. That's why bought puts work like insurance for a portfolio — they pay off in a crash.
Now flip it: SELLING that put means you collect the $200 premium and agree to buy the stock at $95 if it falls that far. If the stock stays above $95, the put expires worthless and you keep the full premium. If it falls below, you buy a stock you chose, at a discount to where it traded when you sold the put. That's why selling puts on companies you'd want to own anyway is, in my opinion, one of the best strategies in all of trading.
| Call Option | Put Option | |
|---|---|---|
| Buyer's right | Buy 100 shares at the strike | Sell 100 shares at the strike |
| Buyer profits when | Stock rises past strike + premium | Stock falls past strike − premium |
| Seller profits when | Stock stays at or below the strike | Stock stays at or above the strike |
| Buyer's max risk | Premium paid | Premium paid |
| Typical use | Bullish bets; capturing upside | Portfolio insurance; income via selling |
Want to see the exact profit or loss on any of these trades? Enter the numbers into my free options profit calculator — it shows the outcome and explains it in plain English.
Want to skip years of trial and error? My free training ($400+ of material, 127+ five-star reviews) teaches the beginner-friendly version of the exact strategy I trade — no credit card required.
How to Buy Puts and Calls (Step by Step)
Buying your first option takes four steps. One: open a brokerage account and apply for options approval (a short questionnaire; beginners typically get Level 1–2). Two: pick the underlying — stick to large, liquid companies or indices, never meme stocks. Three: choose the strike and expiration from the option chain, and check the premium. Four: place the order — one contract controls 100 shares, so a $2.00 premium costs $200.
Before you buy anything, though, read the next section — because buying options is usually the losing side of the trade.
Should You Buy Options or Sell Them?
Here's what most beginner guides won't tell you: option buyers usually lose money. To profit, the buyer needs the stock to move in the right direction, far enough to beat the premium, before the deadline — three things at once.
The seller profits in every other scenario. That's why I trade the selling side: selling option premium with debit-spread hedging (the Financed Bull) on high-quality large-cap stocks — collecting premium with a win rate approaching 98% while hedging the crash risk that hurts unhedged sellers. My trailing-twelve-month results, +78% (~$700K) and +67% (~$2M), are verified with real E*TRADE statements.
Buying options still has a place — as portfolio insurance and for capturing upside at market extremes — but as a hedge you plan, not a lottery ticket you hope on. My selling option premium guide covers the seller's side in full, free, and my options trading for beginners guide is the complete starting path.
Frequently Asked Questions (FAQs)
What are puts and calls for beginners?
A call is the right to buy a stock at a set price (the strike) before a deadline (expiration); a put is the right to sell at the strike before expiration. Buyers pay a premium for those rights; sellers collect the premium and take on the matching obligation.
How do put options work?
A put gains value as the stock falls below the strike. Buyers use puts to profit from declines or insure a portfolio; sellers collect premium and agree to buy the stock at the strike if it drops that far — which is how disciplined traders get paid to acquire stocks they already want at a discount.
How do call options work?
A call gains value as the stock rises above the strike. The buyer profits only if the stock climbs past the strike by more than the premium paid before expiration; otherwise the seller keeps the premium — the statistically more common outcome.
How do you buy a put or call?
Open a brokerage account, get options approval, select the stock's option chain, choose a strike and expiration, and buy the contract — the premium times 100 is your cost and your maximum risk as a buyer. Start with one contract on a large, liquid stock, never more.
When should you buy puts?
In my opinion, bought puts make the most sense as portfolio protection at market extremes — when stocks are stretched and insurance is worth paying for. Buying puts as a routine bet on declines loses money over time, because the market rises more often than it falls.
Are puts bullish or bearish?
It depends which side you're on. Buying a put is bearish (you profit if the stock falls); selling a put is bullish (you profit if the stock stays flat or rises — and you're willing to buy shares at the strike if it doesn't).
What happens when a put or call expires?
An option that expires out of the money simply expires worthless — the buyer loses the premium and the seller keeps it. An option that expires in the money is exercised: an in-the-money put assigns the stock to the put seller at the strike; an in-the-money call obligates the call seller to deliver shares at the strike.
Is it better to sell calls or sell puts?
Both collect premium, but the risk profiles differ: a short put's worst case is buying a stock you selected at a discount, while an unhedged short call has theoretically unlimited risk if the stock soars. That's why my approach centers on selling puts on quality companies and hedging with debit spreads rather than selling naked calls.
Is options trading good for beginners?
Yes — with roughly $2,000, a single high-probability strategy, and real education first. The beginners who fail are the ones who skip the learning and buy cheap lottery-ticket calls; the ones who succeed learn to sell premium with defined risk. My guide to the best options trading courses for beginners maps the free and paid paths.
The Bottom Line
Calls are the right to buy; puts are the right to sell; and the most important choice in options trading is which side of the premium you're on. Buyers pay for possibilities; sellers get paid for probabilities — and probabilities win over time.
Start with my free training ($400+ value) to learn the seller's side properly — or run your first practice trade through the options profit calculator right now and watch the math work.