Call vs Put — when do I want which?
A bullish view buys calls. A bearish view buys puts. The interesting question is who's on the other side, and why.
The buyer side is the easy part:
- Call = right to buy. You buy calls when you think the underlying will go up. If it does, you exercise at the agreed strike and pocket the difference. If it doesn't, you let the call die — you only lose the premium.
- Put = right to sell. You buy puts when you think the underlying will go down — or when you already own it and want a floor. If spot drops below the strike, you exercise at the strike (= sell high). If it stays high, the put expires worthless.
That's 5% of the topic. The 95% is on the seller side, because most flow in derivatives markets is people writing options to earn premium, not speculators buying them.
Why someone sells a call
A covered call writeralready owns the stock and sells calls against it. They're willing to give up the upside above the strike in exchange for premium income today. Implicit view: "I think this stock won't rip much higher in the next 3 months — let me get paid for that opinion."
A naked call writerdoesn't own the underlying. If the stock rips, they're forced to deliver something they don't have — they have to buy at market and deliver at strike, taking unlimited losses. Banned for retail in most jurisdictions for good reason.
Why someone sells a put
A cash-secured put writerhas the cash to buy the stock if assigned. They sell puts at a strike below the current spot — collect premium today, take delivery at the strike if the stock drops. Implicit view: "I wouldn't mind owning this stock at €X. Until then, pay me to wait."
Berkshire Hathaway sold billions of dollars of long-dated S&P 500 puts in the 2000s — they were essentially renting out their balance sheet to take equity exposure if markets crashed, and earning premium in the meantime. It worked.
The four-way matrix
Every position someone takes in vanilla options is one of four:
- Long Call — directional bullish, capped loss = premium.
- Long Put — directional bearish (or hedge an existing long).
- Short Call— implicit view: stock won't rip. Income today, downside if it does.
- Short Put— implicit view: stock won't crash. Income today, downside if it does.
Combinations of these (straddles, strangles, iron condors, …) just dial the view more precisely. But each leg is one of the four above.
Try itOpen the Vanilla pricer. Run a Call and a Put at strike 100, spot 100, vol 20%, time 1Y. Both cost about the same (~€8 each). Now move the spot to 110 — the call is worth ~€15, the put ~€5. The asymmetry is the directional view.Go deeper · ProSee "What happens to my call when dividends are cut?" and the full Q&A on options strategies in the Coach.