What is the Difference Between Call and Put Option?

Last Updated: 24 Jun 2025

Call and put options are two sides of the options market. Here we look at the difference between the call option and the put option. The essential difference between call option and put option arises from the fact that one is an option to buy an underlying asset and the other an option to sell the asset. Having understood the difference between call and put options, we will then move to the nuances of calls and puts. Let us look at the call vs put option in detail.

What is the Difference Between Call and Put Option

Have a look at the Call and Put Option Difference in the F&O market.

Key Difference	Call Option	Put Option
Definition	Right to buy an underlying asset at a fixed price on a future date, price decided today	Right to sell an underlying asset at a fixed price on a future date, price decided today
Obligation	Right without obligation to buy	Right without obligation to sell
Buyer’s Expectation	Expects the price of the underlying to rise	Expects the price of the underlying to fall
Profit Scenario	Profitable when the underlying’s price rises above the strike price	Profitable when the underlying’s price falls below the strike price
Potential Gain	Unlimited (price can theoretically rise infinitely)	Limited (cannot fall below zero)
In-the-Money (ITM) Condition	Spot price is greater than Strike price	Spot price is less than Strike price
Out-of-the-Money (OTM) Condition	Spot price is less than the Strike price	Spot price is greater than the Strike price
Seller’s Expectation	Expects the price will not rise above the strike price	Expects the price will not fall below the strike price
Seller’s Break-even	Strike price + premium received	Strike price – premium received
Seller’s Profit/Loss	Keeps premium if price stays below strike; losses start above break-even	Keeps premium if price stays above strike; losses start below break-even
Nature of Contract	Buyer and seller both exist; buyer has the right, the seller has the obligation if exercised	Buyer and seller both exist; the buyer has the right, the seller has the obligation if exercised.
Market Outlook	Bullish	Bearish

Example of Call Option

Consider these as an example for a call option, both from the buyer and seller perspectives:

• Call option (From Buyer’s Perspective)

You have a belief that Stock X, which is currently at ₹90, will rise, so you buy a 6-month call option to buy shares at a strike price of ₹100, paying ₹2 per share, which amounts to a total premium of ₹200.

This will result in two scenarios:

-Situation 1: You may exercise your right to purchase at ₹100 and sell at ₹110 if Stock X rises to ₹110. The net profit will be ₹10 – ₹2 = ₹8 per share, with the profit per share being ₹10 (₹110-₹100). By multiplying ₹8 with 100, thereby, the total profit amounts to ₹800.                                                                    -Situation 2:If Stock X stays below ₹100, you can go ahead and let the option expire. The loss will be the premium you have paid, which amounts to ₹200.

• Call option (From Seller’s Perspective)

Let’s say you bought 1,000 shares of Reliance Industries. Per share was purchased by you at ₹2,300. Then, you go ahead and sell a call option with a ₹2,500 strike for ₹20 per share, which amounts to a total ₹20,000 premium.

The two situations may be:

-Situation 1: If Reliance stays below ₹2,500, you are bound to keep your shares and the same time, keep the premium of ₹20,000 as well.
-Situation 2: If Reliance rises above ₹2,500, you must sell your shares at ₹2,500, thereby earning ₹200 per share profit plus the premium, but missing any upside above ₹2,500.

Example of Put Option

Consider these as examples for a put option, both from the buyer and seller perspectives:

• Put option (From Buyer’s Perspective)

You believe Stock XYZ, which is currently priced at ₹50, will fall. You go ahead and buy a 1-month put option to sell at ₹50 strike, while paying ₹3 per share premium.

This can result in two scenarios:

–Situation 1: If Stock XYZ falls to ₹40, you exercise your right to sell at ₹50. This makes the profit per share to be ₹10 (₹50-₹40), while the net profit is ₹10 – ₹3 = ₹7 per share. Thereby, the Total profit will amount to ₹700 (₹7 × 100 shares).
-Situation 2: If Stock XYZ stays above ₹50, you can let the option expire. When we talk about the loss, it equals to the premium paid by you, which is ₹300.

Put option (From Seller’s Perspective)

Tata Motors is trading at ₹600. You sell a put option with a strike price of ₹550 and get a ₹10 premium for each share (for a lot size of 100 shares, the total premium is ₹1,000).

This again results in two situations:

-Situation 1: If Tata Motors stays above ₹550, you get to keep the premium.
-Situation 2: If Tata Motors falls below ₹550, you may be obligated to buy at ₹550, even if the market price is much lower, risking losses beyond the premium received

This outlines the examples that show the difference between a call option and put option.

How To Calculate Call and Put Option Payoffs

To better understand the call and put option difference, let’s calculate the payoff for call and put options. The simple formulas outlined below should help:

• Payoff For Call Option

To calculate profit for the buyer:
(Spot price – Strike price) – Premium is the formula.
For instance: The strike price is ₹2,250, the spot price is ₹2,750, and the premium is ₹25. The profit per share will then be (2,750 – 2,250) – 25 = ₹475 each.

To determine the seller’s profit:
Premium is calculated by subtracting the strike price from the spot price.
For instance: The spot price is ₹2,200, the strike price is ₹2,250, and the premium is ₹25. The profit for each share will then be 25 – (2,200 – 2,250) = ₹25.

• Payoff For Put Option

To calculate profit for the buyer:
(Strike price – Spot price) – Premium is the formula.
For instance, if the strike price is ₹165, the premium is ₹5, and the spot price is ₹150, the profit will be (165 – 150) – 5 = ₹10 per share.

To determine the seller’s profit:

Premium – (Strike price – Spot price) is the formula.
For instance, the profit will be 5-(165 – 170) if the strike price is ₹165, the premium is ₹5, and the spot price is ₹170 = ₹5.

What are option premiums?

Options premium is the price traders pay for a call option or put option. When you buy an option, you get the right to trade its underlying market at a specified price for a set period. The price you pay for this right is called the option premium. Remember, the option premium or the option price is the price paid for this right without the obligation.

The option premium is influenced by 3 factors viz price of the underlying contract, level of volatility, and time to expiry. Option premium or option price means the same thing and it is compensation for this right without the obligation.

In mathematical terms, the option premiums can be shown as the sum of the time value of the option and the intrinsic value of the option.

Calculating the option premium and interpreting it

Let us look at it this way. For example, if a call option has an intrinsic value of Rs.15 and a time value of Rs.10, then you will have to pay Rs.25 to purchase the call option as that would be the price of the call option in the market. To make a profit from the option, you’ll need to sell the call option in the market when it is more than Rs.25. Alternatively, if you are going to exercise the option, then your stock price should be able to cover the cost of the strike plus the option cost and leave you with a small profit margin.

The option premium, logically, has two components viz. the intrinsic value and the time value. Now the intrinsic value is more straightforward as it is the difference between the option’s strike price and the current price of the underlying market. For call options, intrinsic value is calculated by deducting the strike price from the underlying spot price. For put options, intrinsic value is calculated by subtracting the underlying price from the strike price. So, that is how the logic of ITM and OTM for call and put options change accordingly.

Time value and time decay in option premiums.

Time to expiry is an important parameter impacting the option premium time value. Time to expiry does not have an impact on the intrinsic value but it has a strong impact on the time value of the option and thus impacts the option premium in a significant way. The longer an option has before it expires, the more time the underlying market has to pass the strike price and vice versa. For a call option and a put option, the longer the time to expiry, the greater is the time value of the option and hence the higher the option premium. You might consider paying more for the option with the longer expiry, as it gives more time for you to make a profit on the deal.

An important aspect of option premium, especially for option sellers is time decay. Falling time value is known as time decay, a risk that options buyers dread and option sellers enjoy. As an option nears expiry, time decay means that its value will drop at an increasingly sharp rate of fall.Have a look at the put call ratio to know the number of call and put options traded in a day.

Frequently Asked Questions

Which is better call or put option?

That would depend on the stock price movement this decision would depend on which of the options is intrinsically under-priced using the Black & Scholes model.

What are some examples of call & put?

A call option example is a right to buy RIL at Rs.2250 for a premium of Rs.25.

A put option example is a right to sell RIL at Rs.2250 for a premium of Rs.20.

The call option is valuable when the price goes above Rs.275 and the put option is valuable if the price goes below Rs.2230.

Does the Out-of-The-Money option have an intrinsic value?

No, it doesn’t. The difference between the strike price of the option and the current price of the market on which it is based is called as intrinsic value. When we talk about a call option, it refers to the amount by which the spot price exceeds the strike price, while for a put, it’s the amount by which the strike price exceeds the spot price. If this difference is zero or negative, the option is Out-of-The-Money (OTM) and has no intrinsic value. 

Can I sell an option before its expiry?

Yes, you can. Most contracts that are liquid allow closing the position before reaching expiry, while these options are generally sold on exchanges. Traders use these strategies to cut their own losses or who want to lock in profits before expiry.

What factors influence option prices?

Option prices can be affected by some of the below mentioned factors:

• Time to expiry: More time has an impact on the extrinsic value of an option, indicating an increase in this value.
• Volatility: The higher the volatility, the more the option premiums will increase as well.
• Price of Underlying Asset: The intrinsic value of the asset changes based on its current price and how it compares to the strike price.