1. Call Option (CE)
Call Option gives the buyer the right, but not the obligation, to purchase the underlying asset at a specified strike price within a certain time period. Buyers of call options expect that the price of the underlying asset will rise above the strike price before the option expires, allowing them to profit from the difference.
- Call Option: Contract giving right to buy the underlying asset at strike price.
- Buyer of Call: Expects market price to rise above strike price.
- Seller of Call: Obligated to sell underlying asset if buyer exercises option.
- Profit Potential: For buyers, profit is unlimited as prices rise indefinitely; loss limited to premium paid.
- Risk for Seller: Sellers (writers) of calls face unlimited risk if prices rise sharply.
Example: Buys NIFTY 18000 Call at ₹100; NIFTY rises to 18500 → profit = ₹400.
2. Put Option (PE)
Put Option gives the buyer the right, but not the obligation, to sell the underlying asset at a specified strike price within a certain time period. Buyers of put options expect that the price of the underlying asset will fall below the strike price before the option expires, allowing them to profit from the decline.
- Put Option: Contract giving right to sell underlying asset at strike price.
- Buyer of Put: Expects market price to fall below strike price.
- Seller of Put: Obligated to buy underlying asset if buyer exercises option.
- Profit Potential: For buyers, profit increases as prices fall; loss limited to premium paid.
- Risk for Seller: Sellers (writers) of puts face large risk if prices fall sharply.
Example: Buys NIFTY 18000 Put at ₹120; NIFTY falls to 17500 → profit = ₹380.
3. What is CE and PE?
| Symbol | Stands For | Meaning |
| CE | Call European | Right to Buy at expiry (European style) |
| PE | Put European | Right to Sell at expiry (European style) |
- CE means you have bought the right to buy the asset on the expiry date.
- PE means you have bought the right to sell the asset on the expiry date.
The “E” in CE/PE stands for European Style, which indicates that the option can only be exercised on the expiry date, not before.
🔹 European Style Options
A European option can be exercised only on the expiration date, not before. This style simplifies pricing and risk management, and is standard in Indian markets (e.g., NIFTY, BANKNIFTY, RELIANCE options).
🔹 American Style Options
An American option can be exercised at any time up to and including expiry. This added flexibility gives more strategic choices but makes pricing more complex. Commonly used in the US equity markets.
4. European vs. American Style Options
| Feature | European Style | American Style |
| Exercise Timing | Only on expiry date | Any time before or on expiry |
| Flexibility | Less flexible | More flexible |
| Complexity | Easier to price and manage | More complex (due to early exercise feature) |
| Usage in India | ✅ Yes (NSE/BSE Index & Stock options) |
❌ No |
| Usage in the US | ❌ Rare | ✅ Yes (equity options like AAPL, TSLA) |
5. Call Options vs Put Options
| Feature | Call Option | Put Option |
| Right to | Buy underlying asset | Sell underlying asset |
| Market View | Bullish (expect price increase) | Bearish (expect price decrease) |
| Obligation of Seller | Must sell if buyer exercises | Must buy if buyer exercises |
| Buyer Benefit When | Underlying price rises above strike | Underlying price falls below strike |
Summary Points:
- Calls benefit from rising asset prices.
- Puts benefit from falling asset prices.
- The seller (writer) of the option has an obligation if the buyer exercises the option.