1
Calls
A call gives its holder the right to buy the underlying at the strike under the contract terms.
Lesson · Options Trading
Calls and Puts
Compare long and short calls and puts by directional exposure, holder rights, writer obligations, expiration breakeven, and maximum risk.
Synthetic educational examples
Core concepts
Two contract types, two sides each: four positions from one strike and one premium.
2
Puts
A put gives its holder the right to sell the underlying at the strike under the contract terms.
3
Long versus short
Long positions pay premium for rights. Short positions receive premium and accept obligations.
Worked example
One strike and one premium — 100 strike, $4.00, one contract — taken through all four positions, so the arithmetic the drill asks for is done once in the open.
1
Long call: breakeven $104.00, maximum loss $400, maximum profit uncapped.Breakeven is strike plus premium, 100 + 4. The loss cannot exceed the $4.00 × 100 paid. At $110 the P/L is (10 − 4) × 100 = +$600.
2
Long put: breakeven $96.00, maximum loss $400, maximum profit $9,600.Breakeven is strike minus premium, 100 − 4. The most it can make is (100 − 4) × 100 if the stock goes to zero. At $110 the put expires worthless: −$400.
3
Short call: breakeven $104.00, maximum profit $400, loss uncapped.The holder’s breakeven is the writer’s. Above $104 every dollar is the writer’s loss, with no ceiling. At $110: (4 − 10) × 100 = −$600.
4
Short put: breakeven $96.00, maximum profit $400, maximum loss $9,600.The writer keeps the premium at or above the strike and buys the stock at $100 below it. At $110 the put expires worthless: +$400.
Interactive lesson
Choose a position and drag the expiration price; the payoff, breakeven and maximum loss follow.
Horizontal axis: underlying price at expiration. Vertical axis: position profit or loss before fees.
Classify a basic option position
Determine the type, side, and expiration economics before looking at a chart.
1
Choose call or put
Call exposure is tied to buying at the strike; put exposure is tied to selling at the strike.
2
Choose long or short
Long is the holder. Short is the writer who can be assigned.
3
Calculate breakeven
Calls use strike plus premium; puts use strike minus premium at expiration.
4
State maximum risk
Do not describe a position without its maximum or substantial-loss condition.
Position identification
Score 0 / 0Choose the best answer.
Lesson rule
Change the inputs, calculate the result, and explain the risk before selecting a contract.
Common mistakes
1
Equating calls with bullish in every caseA long call is bullish, while a short call is neutral-to-bearish and carries different risk.
2
Ignoring premium in breakevenBeing in-the-money does not necessarily mean the position is profitable.
3
Using expiration payoff for every momentBefore expiration, time value and implied volatility also affect the option price.
Completion standard
✓
Finish when you can give the breakeven and the maximum loss of each of the four positions from strike and premium alone, and name the one whose loss has no cap.
The drill asks for the position that fits a description, a breakeven, the uncapped position, and a short put’s P/L at a price; do all four before opening the chart.
Model scope: Theoretical values use a simplified European Black–Scholes model with a fixed 4.5% annual rate and no dividend input, so a number here can be reproduced in any calculator that takes those inputs. Listed products, early exercise, dividends, spreads, fees, and market conditions can produce different prices and outcomes.