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

Edited by Sumera Saeed || By Sawaira Riaz || Published on February 6, 2024
A call option gives the holder the right to buy an asset at a set price, while a put option gives the right to sell an asset at a set price.

Key Differences

Call Option financial derivative grants the buyer the right, but not the obligation, to purchase a stock or other asset at a specified price (the strike price) within a certain time frame. The buyer of a call option anticipates that the asset's price will rise. Conversely, a put option gives the buyer the right to sell a stock or asset at the strike price within a designated period. In this scenario, the buyer expects that the asset's price will decline.
Sawaira Riaz
Feb 06, 2024
The value of a call option increases as the market price of the underlying asset increases. Investors buy call options when they are bullish on the asset. On the other hand, the value of a put option increases as the market price of the underlying asset decreases. Investors buy put options when they are bearish or expect the market to fall.
Sawaira Riaz
Feb 06, 2024
If the market price is above the strike price at expiration, the call option is 'in the money', and the holder can profit by exercising the option. For a put option, if the market price is below the strike price, the option is 'in the money', and exercising it allows the holder to profit by selling the asset above its market value.
Sawaira Riaz
Feb 06, 2024
The risk for the buyer of a call option is limited to the premium paid for the option. Similarly, for a put option, the buyer's risk is confined to the premium paid, but they can potentially profit from a declining market.
Janet White
Feb 06, 2024

Comparison Chart

Right Granted

To buy an asset at a set price.
To sell an asset at a set price.
Sawaira Riaz
Feb 06, 2024
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Market Expectation

Bullish, expecting the asset's price to rise.
Bearish, expecting the asset's price to fall.
Sumera Saeed
Feb 06, 2024

Value Increase

When the underlying asset's price rises.
When the underlying asset's price falls.
Sawaira Riaz
Feb 06, 2024

Condition for Profit

Profitable if market price exceeds strike price.
Profitable if market price is below strike price.
Sawaira Riaz
Feb 06, 2024

Risk

Limited to the premium paid.
Limited to the premium paid.
Sawaira Riaz
Feb 06, 2024

Call Option and Put Option Definitions

Call Option

A trading strategy used to leverage gains in a bullish market.
She used a call option to enhance her portfolio's performance.
Sawaira Riaz
Jan 26, 2024
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Put Option

A contract granting the right to sell an asset at a specified price.
He bought a put option to hedge against potential stock price declines.
Sawaira Riaz
Jan 26, 2024

Call Option

A financial instrument that allows speculation on rising asset prices.
Using a call option, she capitalized on the market's upward movement.
Sawaira Riaz
Jan 26, 2024

Put Option

A derivative that allows the holder to sell assets at a pre-agreed price.
He exercised his put option and sold his shares above the market price.
Harlon Moss
Jan 26, 2024

Call Option

An option contract where the buyer bets on an asset's price increase.
The investor’s call option became profitable as the stock price soared.
Sawaira Riaz
Jan 26, 2024

Put Option

An option contract where the buyer anticipates a decrease in asset prices.
The investor profited from the put option when the market fell sharply.
Sawaira Riaz
Jan 26, 2024

Call Option

A derivative that gives the holder the option to purchase assets at a set price.
He exercised his call option when the market price exceeded the strike price.
Janet White
Jan 26, 2024

Put Option

A financial tool for speculating on or hedging against falling asset prices.
She purchased a put option as insurance against her stock holdings.
Sumera Saeed
Jan 26, 2024

Call Option

A contract giving the right to buy an asset at a predetermined price.
He bought a call option expecting the stock price to rise.
Sawaira Riaz
Jan 26, 2024

Put Option

A trading strategy for benefiting from bearish market trends.
Using a put option, she offset losses in her portfolio during the downturn.
Janet White
Jan 26, 2024

FAQs

When do investors buy call options?

Investors buy call options when they anticipate an increase in the asset's price.
Sawaira Riaz
Feb 06, 2024

What does the strike price mean in a put option?

In a put option, it's the price at which the asset can be sold.
Sawaira Riaz
Feb 06, 2024

What is a put option?

A put option is a contract allowing the sale of an asset at a predetermined price within a set period.
Sawaira Riaz
Feb 06, 2024

When are put options purchased?

Put options are bought when an investor expects a decrease in the asset's price.
Janet White
Feb 06, 2024

How does a put option generate profit?

Profit happens when the market price is below the strike price at or before expiration.
Janet White
Feb 06, 2024

Can you sell a call option before expiration?

Yes, call options can be sold before they expire.
Sawaira Riaz
Feb 06, 2024

What is the strike price in a call option?

It's the pre-determined price at which the asset can be bought under the call option.
Aimie Carlson
Feb 06, 2024

How does a call option make a profit?

Profit occurs when the market price exceeds the strike price at or before expiration.
Janet White
Feb 06, 2024

Can a put option be sold early?

Yes, put options can be sold prior to expiration.
Aimie Carlson
Feb 06, 2024

What is a call option?

A call option is a contract giving the right to buy an asset at a set price within a specific time.
Sawaira Riaz
Feb 06, 2024

What is the risk in buying a call option?

The risk is limited to the premium paid for the option.
Janet White
Feb 06, 2024

Are call options only for stocks?

No, call options can be for various assets, including commodities and indexes.
Janet White
Feb 06, 2024

What factors affect the price of a call option?

Factors include the underlying asset's price, time to expiration, and market volatility.
Aimie Carlson
Feb 06, 2024

What is the risk in buying a put option?

The risk is confined to the premium paid for purchasing the put option.
Janet White
Feb 06, 2024

What happens if a call option is not exercised?

It expires worthless, and the buyer loses the premium paid.
Janet White
Feb 06, 2024

Is owning a call option the same as owning the stock?

No, owning a call option does not equate to owning the stock itself.
Sawaira Riaz
Feb 06, 2024

Can put options be used on assets other than stocks?

Yes, they can be used on different assets like commodities and indexes.
Aimie Carlson
Feb 06, 2024

What influences the price of a put option?

The price is influenced by the asset's market price, time to expiration, and volatility.
Harlon Moss
Feb 06, 2024

What occurs if a put option is not exercised?

The put option expires worthless, with the premium paid being the loss.
Harlon Moss
Feb 06, 2024

Does owning a put option mean you own the underlying asset?

No, it only gives the right to sell the asset, not ownership of it.
Sawaira Riaz
Feb 06, 2024
About Author
Written by
Sawaira Riaz
Sawaira is a dedicated content editor at difference.wiki, where she meticulously refines articles to ensure clarity and accuracy. With a keen eye for detail, she upholds the site's commitment to delivering insightful and precise content.
Edited by
Sumera Saeed
Sumera is an experienced content writer and editor with a niche in comparative analysis. At Diffeence Wiki, she crafts clear and unbiased comparisons to guide readers in making informed decisions. With a dedication to thorough research and quality, Sumera's work stands out in the digital realm. Off the clock, she enjoys reading and exploring diverse cultures.

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