Learn / Trade options with confidence
Calls and puts in plain words
What is a call, what is a put, and what do I promise when I sell one?
Video coming soon
In this lesson
- A call is a right to buy, a put is a right to sell. A call lets the buyer buy shares at a fixed price, and a put lets the buyer sell them at a fixed price. That price is called the strike.
- Whoever sells an option is paid a premium and takes on a duty. If the buyer exercises, with a call you sell your shares at the strike. With a put you buy shares at the strike.
- One contract always stands for 100 shares. The premium is quoted per share, so one contract pays 100 times that. With 60 shares you cannot sell a covered call yet.
- Buying an option and selling one carry opposite risks. The buyer can lose at most the premium. The seller keeps the premium and carries the duty.
The example: calls and puts in the sample account
In the sample account you bought 200 shares at $29.91. Then you sell two calls, strike $32, for 35 cents per share: $70. The buyer may buy your shares at $32 until April 19. The dashed line in Rendity is the strike.
On 19 April McDonald's closes at $271.99, just above the strike. Nobody sells you shares at $270. Rendity shows the put as expired, and you keep the $260.
A call is the mirror image. Since 14 June you hold 100 McDonald's shares, and on 25 June the stock is at $257.38. You sell a call with a strike of $270 until 19 July and get $1.20 a share, so $120. With that you promise to sell your 100 shares at $270 if the buyer exercises.
On 19 July the stock closes at $257.28, below the strike. Rendity shows the call as expired too. You keep the shares and the $120.
Sample account, not real data, not investment advice.
Where to find it in Rendity
Open a stock under Positions, for example MCD. The position chart shows each option on its stock. Click an option and its details appear below, and the dashed line shows the strike.
Included inSprout Tree Orchard
Terms from this lesson
Education only, not investment advice. Tax topics are not tax advice.