Difference between Call and Put Option

An option in financial markets refers to a derivative instrument which derives its value from the underlying; an option enables a person to take long or short position in market depending on his or her view. Options are of two types one is call option and other is put option, let’s look at the differences between call and put option to get a better idea about both of them –

  1. A call option is one which allows the buyer of the option to buy an agreed quantity of stock at predetermined price to the seller of call option, while put option is one which allows the buyer of the option to sell agreed quantity of stock at predetermined price to the seller of the put option.
  2. A person who buys call option is bullish on the stock while the seller of call option is bearish on the stock while a person who buys put option is bearish on the stock and seller of put option is bullish on the stock.
  3. Call option buyers benefits when the price of stock rises while the put option buyers benefits when the price of stock falls. Conversely call option writer benefits when the price of stock falls and put option writer benefits when the price of stock rises.
  4. A call option buyer has the right to buy the stock even if the current price of stock is more than agreed price between call option buyer and call option writer, while a put option buyer can sell the stock even if the current price of stock is less than agreed price between put option buyer and put option writer.

However under both call and put option the buyer has to pay a premium to the seller of the option in order to have the benefits of options.

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