Reference · Cheat sheet
The Four Wishes
Every single-leg option position is one of four wishes about price. Two words decide it.
| Call (about upside) | Put (about downside) | |
|---|---|---|
| Long (bought) | Up. Wants spot above strike. Pays premium. Loss capped at premium. | Down. Wants spot below strike. Pays premium. Loss capped at premium. |
| Short (sold) | Not up. Wants spot at or below strike. Receives premium. Loss open-ended. | Not down. Wants spot at or above strike. Receives premium. Loss large (to zero). |
The test that never fails
When does my option become worthless, and do I want that?
A ₹2,600 call is worthless if Reliance ends at or below ₹2,600. If you bought it, that's your nightmare, so you want above. If you sold it, that's your payday, so you want at-or-below.
The same table in Varsity's words
| View | Position | Premium |
|---|---|---|
| Bullish | Long call | Pay |
| Flat or bullish | Short put | Receive |
| Flat or bearish | Short call | Receive |
| Bearish | Long put | Pay |
Source: Zerodha Varsity, Summarizing Call & Put Options. Note that "flat" appears only in the short rows: sellers are paid for stillness.
Worked numbers, Reliance at ₹2,500, lot 250
| At expiry | Long 2,600 call, paid 30 | Short 2,600 call, got 30 | Long 2,400 put, paid 28 | Short 2,400 put, got 28 |
|---|---|---|---|---|
| ₹2,200 | −30 | +30 | +172 | −172 |
| ₹2,400 | −30 | +30 | −28 | +28 |
| ₹2,500 | −30 | +30 | −28 | +28 |
| ₹2,600 | −30 | +30 | −28 | +28 |
| ₹2,800 | +170 | −170 | −28 | +28 |
Per share. Multiply by 250 for the lot. Each short column is its long column with the sign flipped: same contract, other side.