Module 11 · Option buying and selling · 5 min
Buying vs selling options: understand the payoff
Every option has two sides: the buyer pays the premium, the seller receives it. Use the slider to see who gets what at expiry.
Buying a call (CE)
Strike 100, premium 5. At expiry, price 112 = value 12 - premium 5 = +7. Price 100 or below = value 0, the loss is just the 5 premium. You profit above strike + premium (105).
Buying a put (PE)
A put gains when the price falls. Strike 100, premium 5: price 90 = 10 - 5 = +5. Breakeven = 100 - 5 = 95.
Selling (writing)
The seller receives the premium upfront, but the profit is capped at it. If the price moves strongly against them, the loss can be many times the premium, which is why selling needs margin.
Per-lot maths
The numbers above are per unit. Multiply by the lot size: a premium of 5 x 65 (one lot) = 325 rupees.
Quiz (3 questions)
1. Bought a CE (strike 100, premium 5). Breakeven?
2. What is the most an option buyer can lose?
3. Why does selling an option need margin?
This is for learning only, not advice on any stock or trade.