Understanding the two fundamental building blocks of every options strategy you will ever trade.
Every option trade, no matter how complex, is built from two basic components.
- The call option
- The put option
Today, we will break down exactly what each one represents, how they work, and how you will use them throughout this course.
What Is a Call Option
A call option gives the buyer the right, but not the obligation, to buy the underlying asset at a specified price, known as the strike price, on the option’s expiry date.
If you buy a call, you are hoping the price of the asset goes up.
If the asset price is above the strike price at expiry, your call is profitable.
If the asset price is below the strike price, your call expires worthless, and you lose the premium you paid.
Think of a call option as a leveraged bet on upward movement.
What Is a Put Option
A put option gives the buyer the right, but not the obligation, to sell the underlying asset at a specified strike price on the option’s expiry date.
If you buy a put, you are hoping the price of the asset goes down.
If the asset price is below the strike price at expiry, your put is profitable.
If the asset price is above the strike price, your put expires worthless, and you lose the premium you paid.
Think of a put option as a leveraged bet on downward movement.
Visualizing Profit and Loss
At a basic level:
- Buying a call profits when the price goes up
- Buying a put profits when the price goes down
The maximum loss for both is the premium you pay to buy the option.
The potential reward can be much larger, especially for calls.
On Derive, you will see these payoffs visualized on the trade ticket before you place a trade, making risk and reward clear.
Why This Matters
If you understand calls and puts, you understand the foundation of every strategy in options trading.
Spreads, straddles, iron condors, and complex structures are all built by combining calls and puts.
Master these basics and you unlock the entire playbook.
Your Action Today
- Open Derive
- Select BTC or ETH
- Browse a few call options and put options
- Notice the premiums and strike prices
- Think about what would need to happen for each option to be profitable at expiry
You do not need to place a trade yet.
You just need to start thinking in terms of calls and puts.
Coming tomorrow:
Day 5 – Understanding Premiums: What You Pay and Why It Matters
Hasta manana
Cpt
CptRandlelwa
