The four basic option positions: payoffs and risks

Buying or selling a call or put creates four different payoff shapes. Learn their limits before combining them with stock or cash.

By OptionsKing. Publisher and editorial methods.

Use one strike and expiration to isolate the effect of buying versus selling. Read each table column as a separate position, including its initial premium. Then add stock or reserved cash and ask how that changes the ability to meet an obligation, rather than assuming it removes market risk.

Compare all four positions at expiration

Chipotle (CMG) at $38.40, September 19, 45 days. One strike, $40, so the comparison is clean. The call is $1.38 and the put is $2.78, both at the mid.

Read across a row and the two sides sum to zero, every time. Options are a transfer, not a creation. Read down a column and you get the shape of each position.

Buying options: a known cost

Long call. Pay $138, and below $40 that is the whole story: the contract expires and the money is gone. Above $41.38 you make money and it keeps going. Maximum loss $138, maximum gain unbounded, and roughly a 36.6 percent chance of finishing in the money at all. This is the trade almost everybody starts with and the reason most people's first year in options goes badly.

Long put. Pay $278 for a position that benefits from a sufficiently large decline, with maximum option profit of $3,722 if CMG reaches zero. Against shares you own, the put supplies a contractual sale floor while it remains in force. Here the premium is 7.2 percent of the stock's $3,840 value for 45 days of protection. Whether that cost is worthwhile depends on the protection objective and the alternatives.

Selling options: a known credit and an obligation

Short put. Collect $278. Your best case is exactly that, reached anywhere at or above $40. Your worst case is $3,722, reached at zero. This is the cash-secured put once you park $4,000 against it, and it is the trade cluster E takes apart end to end.

Short call. Collect $138. Best case $138. Worst case has no number in it. At $52 you are down $1,062 and the row below the table does not exist because there is nothing to put in it. Naked, this is the position that ends accounts, and it ends them on takeover announcements and squeezes rather than on slow drifts.

Own 100 shares first and it becomes a covered call, where the unbounded loss becomes an unbounded opportunity cost. Those are extremely different things, and the difference is the shares.

Summarize each payoff

At expiration, first calculate intrinsic value: max(stock minus strike, zero) for a call and max(strike minus stock, zero) for a put. Multiply by 100, then subtract the premium for a buyer or subtract the payoff from the credit for a seller. The table follows these steps.

• Long call: small known cost, large unknown gain, needs the stock to move.
• Long put: small known cost, large capped gain, needs the stock to fall.
• Short call: small known gain, unbounded loss, wants nothing to happen.
• Short put: small known gain, large capped loss, wants nothing to happen.

The buyers need a move and pay for the privilege of waiting. The sellers need stillness and get paid for the risk that it does not arrive. That is the whole of it, and the Greeks are just the same statement in calculus.

Why the numbers are not symmetric

The put costs $278 and the call costs $138, at the same strike, on the same stock. Twice as much.

Partly because $40 is $1.60 above the stock, so the put is already in the money and carries $1.60 of intrinsic value. Strip that out and you get $1.18 of time value against the call's $1.38, and that remaining 20 cent gap is the interest on the strike. At this same strike the call and put share the model's implied volatility. Skew describes volatility differences across strikes, not an additional explanation for this same-strike price gap.

Which is why sellers who can choose tend to end up on the put side, and why the choice is really a question about what you want to be left holding.

What a premium seller actually uses

Two of the four, and never bare.

Short call plus 100 shares is a covered call. Short put plus the cash is a cash-secured put. Do them in sequence on the same ticker and you are running the wheel. That is the entire strategy family this site is built around, and it is three trades made of two positions.

The other combinations are worth knowing about. Buying a further option against the one you sold caps the loss and creates a credit spread, which is how you sell premium without owning the shares or securing the cash. That trades an obligation you can meet for one that is simply smaller.

Common questions

Sources

• OCC / Options Industry Council, Options Basics FAQ
• OCC, Characteristics and Risks of Standardized Options

Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.

Keep reading

• Which of the two seller positions to take
• What happens when you buy one back against the other
• These four shapes, in Greeks

Do the math on your own trade

• Payoff diagram builder draw the position and see where the line goes flat.
• Covered call calculator premium, break-even, static and if-called return, annualized.
• Cash-secured put calculator credit, break-even, return on secured capital, annualized.

Every price in this article is an illustrative worked example, not a quote. Read Options basics for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.