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Options confuse people because there are four possible positions: buy a call, sell a call, buy a put, sell a put. Each behaves differently. This guide covers the two most common for beginners: buying calls (bullish bet) and buying puts (bearish bet). One sentence each: calls make money when stocks go up, puts make money when stocks go down.
Model any call or put scenario before trading.
Open Options CalculatorA call option gives you the right to buy 100 shares at the strike price. You pay a premium for this right. You want the stock to go UP.
Stock: AAPL trading at $170. You buy 1 call option: $175 strike, $4.00 premium, 30 days to expiration. Cost: $400 (4.00 x 100 shares).
| AAPL at Expiration | Option Value | Your P&L | ROI |
|---|---|---|---|
| $165 (below strike) | $0 (worthless) | -$400 (lost premium) | -100% |
| $170 (at current price) | $0 | -$400 | -100% |
| $175 (at strike) | $0 | -$400 | -100% |
| $179 (breakeven) | $400 | $0 | 0% |
| $185 | $1,000 | +$600 | +150% |
| $195 | $2,000 | +$1,600 | +400% |
| $210 | $3,500 | +$3,100 | +775% |
Breakeven = Strike + Premium = $175 + $4 = $179. Below $179, you lose money. Above $179, you profit dollar-for-dollar. Max loss: $400 (premium paid). Max profit: unlimited (stock can rise forever).
A put option gives you the right to sell 100 shares at the strike price. You pay a premium. You want the stock to go DOWN.
Stock: TSLA trading at $250. You buy 1 put option: $240 strike, $6.00 premium, 30 days to expiration. Cost: $600.
| TSLA at Expiration | Option Value | Your P&L | ROI |
|---|---|---|---|
| $270 (stock rose) | $0 (worthless) | -$600 | -100% |
| $250 (unchanged) | $0 | -$600 | -100% |
| $240 (at strike) | $0 | -$600 | -100% |
| $234 (breakeven) | $600 | $0 | 0% |
| $220 | $2,000 | +$1,400 | +233% |
| $200 | $4,000 | +$3,400 | +567% |
| $180 | $6,000 | +$5,400 | +900% |
Breakeven = Strike - Premium = $240 - $6 = $234. Above $234, you lose money. Below $234, you profit. Max loss: $600. Max profit: $23,400 (if stock goes to $0, which is extreme).
| Call Option | Put Option | |
|---|---|---|
| Direction | Bullish (stock goes up) | Bearish (stock goes down) |
| Right to... | Buy shares at strike price | Sell shares at strike price |
| Breakeven | Strike + Premium | Strike - Premium |
| Max loss (buying) | Premium paid | Premium paid |
| Max profit | Unlimited (stock can rise forever) | Strike - Premium (stock can only drop to $0) |
| When to use | Expect stock to rise | Expect stock to fall or want portfolio insurance |
| Common mistake | Buying too far out of the money | Buying too little time to expiration |
Model your call or put trade before committing money.
Open Options Calculator