Skip to main content
Asked a question last year

How call buying option and selling put option are different?

Join FYERS Community to pick others' brains on Trading/Investing

Hi Ishita, while both the strategies are bullish, there is quite a substantial difference between the two. Below mentioned are some of the key differences between buying a call option and selling a put option:

Right vs. Obligation: The buyer of a call has a right to exercise the option i.e. a right to buy the underlying at expiry, whereas the seller of a put has an obligation to honor the contract in case the buyer of the put exercises his/her right i.e. a right to sell the underlying.

Strategy type: A long call is a capital appreciation strategy, while a short put is an income strategy.

Risk: When you buy a call, the risk is limited to the extent of the premium paid upfront. On the other hand, when you sell a put, the risk is potentially unlimited.

Reward: When you buy a call, the reward potential is unlimited. When you sell a put, the reward potential is limited to the extent of premium received.

Probability of Profit: Selling an option has a greater probability of profit than buying a same strike option. So, as you can see from this point and the previous two, there is a trade off between risk/reward and the probability of profit.

Effects of time passage: When you buy a call, time is your enemy. With each passing day, the time value component of the option reduces by the amount of Theta, everything else constant. Meanwhile, when you sell a put, time is your best friend.

Hope this helps!

If you want to learn about options, I suggest you visit the following modules on School of Stocks. We have explained various aspects of options in great detail.

  • Options Module: Click here13
  • Options Strategies Module: Click here10

Related Questions