3. Short Calls, Long Calls, Short Puts and Long Puts

A short call is a bearish to neutral options trading strategy that capitalizes on downward price movements in the underlying asset and the passage of time (theta decay). A long call is a bullish options trading strategy that strictly capitalizes on upward price movements in the underlying asset.

Short Call vs Long Calls

A buying to open a long call gives a trader the right, but not the obligation, to purchase shares of a stock at a predetermined price on a predetermined date

On the other hand, selling to open a short call obligates a trader to sell shares of a stock at a predetermined price on a predetermined date, assuming the short call is in the money

For every trader that buys a call option, there was theoretically another who sold that same call option

Calls

Selling a Call

  • Max Profit Option premium
  • Max Loss Unlimited
  • Break Even Strike price + Premium
    short_call.png
    Buying a Call
  • Max profit Unlimited
  • Max loss Option premium
  • Break even Strike price + premium
    long_call.png

Puts

Buying a put

  • Max loss Premium Price
  • Max profit Unlimited, capped at zero
  • Break even underlying price [Strike price] - [Premium Price]
    long put.png

Selling a put

  • Max loss Unlimited
  • Max profit Premium of the put
  • Break Even Underlying Price [Strike Price] - [Premium]
    short put.png

Cash secured put The cash-secured put involves writing an at-the-money or out-of-the-money put option and simultaneously setting aside enough cash in your cash account to buy the stock

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Table Of Contents
3. Short Calls, Long Calls, Short Puts and Long Puts
Short Call vs Long Calls
Calls
Puts