Call and Put in Share Market Explained for Beginner Investors
When you start exploring the stock market, one of the most common terms you’ll come across in derivatives trading is...
When you start exploring the stock market, one of the most common terms you’ll come across in derivatives trading is call and put. Many beginner investors wonder: what is call and put in share market? These terms are linked to options trading, which allows traders to make profits not just when the market goes up, but also when it goes down. Let’s break it down in simple terms so that you can understand how these concepts work.
What is a Call Option?
A call option gives the buyer the right, but not the obligation, to buy a stock at a specific price (called the strike price) within a certain period of time. Investors usually buy call options when they expect the price of a stock to rise.
- Example: Suppose a stock is trading at ₹100, and you buy a call option with a strike price of ₹110. If the stock rises to ₹130, you can still buy it at ₹110, making a profit. If the stock does not rise, you can simply let the option expire and your loss is limited to the premium paid.
What is a Put Option?
A put option gives the buyer the right, but not the obligation, to sell a stock at a specific strike price within a fixed period. Investors usually buy put options when they expect the stock price to fall.
- Example: A stock is currently at ₹200, and you buy a put option with a strike price of ₹190. If the stock falls to ₹170, you can sell it at ₹190, earning a profit. If the stock does not fall, your maximum loss will be the premium paid.
Key Differences Between Call and Put
| Feature | Call Option | Put Option |
|---|---|---|
| Right Provided | Buy stock | Sell stock |
| Best Used When | Prices are rising | Prices are falling |
| Profit Opportunity | Unlimited | Significant (till stock hits zero) |
| Loss Limitation | Premium paid | Premium paid |
This simple difference makes call options attractive in a bullish market, while put options are useful in a bearish market.
Why Do Investors Use Call and Put Options?
Options are widely used in the share market because they provide flexibility and risk management. Here’s why beginner investors should know about them:
- Speculation – Traders use call and put options to make profits from short-term price movements without needing to buy or sell the actual shares.
- Hedging – Investors use options to protect their portfolio from unexpected losses. For instance, buying a put option can act as insurance against a falling market.
- Leverage – Options allow you to control large quantities of shares by paying only a small premium. This can multiply returns but also carries risk.
Risks Involved in Options Trading
While options can be rewarding, they are not risk-free. Some risks beginner investors should be aware of include:
- Premium loss – If the stock does not move as expected, the premium paid for the option is lost.
- Time decay – Options lose value as the expiration date nears, even if the stock price doesn’t change much.
- Complexity – Options require more knowledge than simply buying or selling stocks, so beginners must learn before investing heavily.
Conclusion
Understanding what is call and put in share market is the first step toward exploring the world of derivatives. A call option benefits you when the stock price goes up, while a put option helps when the price goes down. Both can be powerful tools for speculation and hedging, but they carry risks that must be managed carefully.
At Appreciate Wealth, we believe that learning the basics of investment tools like call and put options helps you make smarter financial decisions. As a beginner investor, start small, focus on building knowledge, and use these instruments wisely to safeguard and grow your wealth.
