“Understanding Put and Call Options: How Traders Profit in Markets”

What Are PE VS CE in the Stock Market? A Simple Guide for Beginners

If you are just starting with stock market trading, you might be familiar with PE (Put Option) and CE (Call Option) already but have you ever thought of understanding what they mean? Not at all! Let’s break these terms into simple language so that you can grasp them without getting into complex financial jargon.

Understanding Options in the Stock Market

Options refer to a unique contract that allows the buyer to buy or sell the stock at a certain price before a certain specific date. People use them for the security of their investments, market prediction, and also to exaggerate the power of their trading.

You can find the following types of options:

1. CE (Call Option) – You get the right to buy a stock.

2. PE (Put Option) – You get the right to sell a stock.

Now we will describe each of them!

What is CE (Call Option)?

A Call Option (CE) is a financial contract that gives you the power to buy a stock at a specific price (also known as the strike price) within a certain duration. You buy a CE if you anticipate the stock’s price to go up.

Example:

Assume you believe that the stock of Company ABC, which currently is trading at ₹100, will increase up to ₹120 shortly. Consequently, you buy a Call Option with a strike price of ₹110. If the share price goes beyond ₹110 before it expires, you can purchase the stock at ₹110 and then you can sell it at the market price making a profit!

If the stock fails to move upward, you simply allow the option to expire and you lose only the premium you have paid to buy the contract.

What is PE (Put Option)?

A Put Option (PE), unlike a call option (CE), gives the buyer the right (but not the obligation) to sell a stock at a predetermined price before the expiry date. If you think the price of a stock will fall, then buying a PE will get you the money.

Example:

Imagine that you think Company XYZ’s stock, now trading at ₹200, will fall to ₹180. You buy a Put Option of ₹190 strike. If the stock goes below ₹190, you are the one who sells it at ₹190 and then you can buy it back to make a profit because the price is lower! Well done.

On the other hand, when the stock doesn’t drop as you anticipated, you are the one who lets the option expire, and thus, in that case, you will only lose the premium you paid upfront.

Why Do Traders Use PE and CE?

Options trading is the most popular trading strategy that gives traders an option to make money while also having the ability to manage risks. The following are the reasons why traders prefer PE and CE:

✅ Margin – You do not have to put much money but still can control a big trade position.

✅ Safety – Avoid the negative effects of severe market volatility on your portfolio.

✅ Multiplicity – Win in bullish (CE) and bearish (PE) markets.

Final Thoughts

If you are a newbie, the concept of options trading might be weird at the very beginning, but it is the knowledge of CE and PE that matters. They provide a trader with a variety of trading opportunities and at the same time create an effective risk management system. Nevertheless, it is worth mentioning that trading options comes with certain risks and you should be careful. Thus, it is better to start with a demo account before you go into real money.

Did you buy CE/Put options before? Let us know your experience!