CE (Call) and PE (Put) Options in F&O Market

In the Indian stock market, you might often hear the terms CE and PE when discussing options. CE stands for Call European, and PE stands for Put European – essentially, these are shorthand for Call Option and Put Option contracts. A call option (CE) gives the holder the right to buy an asset at a set price within a specific time, while a put option (PE) gives the right to sell an asset at a set price within a specific time. Understanding CE and PE is crucial for anyone looking to trade or invest in options. This article will break down what call and put options mean, explain basic option terminology (like strike price, premium, expiry), and show how traders use CE and PE on popular indices like Nifty 50 and Banknifty. We’ll also cover why option prices change and go over some do’s and don’ts for beginners – including common mistakes many new traders (myself included) have learned from. Let’s start with the basics.

What is a Call Option (CE)?

A Call Option (denoted as CE in India) is a contract that gives you the right (but not the obligation) to buy an underlying asset at a predetermined price within a specified time frame. The predetermined price is known as the strike price, and the specified time frame ends on the expiry date of the option. If you buy a call option, you are usually bullish – you expect the price of the underlying asset (say a stock or an index) to go up.

• Example (Nifty Call): Suppose the Nifty 50 index is at 18,000 points. You anticipate it will rise in the coming weeks. You could buy a call option with, for example, a 18,200 strike price (a Nifty 18200 CE) expiring next month. This call option gives you the right to buy the Nifty index (technically, the equivalent value in cash since index options are cash-settled) at 18,200 on expiry. If by the expiry date Nifty has risen to 18,500, your call option would be “in the money” – you could exercise your right to buy at 18,200 and immediately sell at 18,500, profiting 300 points per unit. In practice, you would just sell the option itself for a profit before or at expiry. If Nifty’s value increases, the price (premium) of your call option will also increase (since the option becomes more valuable). On the other hand, if Nifty stays below 18,200 by expiry, the call option could expire worthless and you would lose the premium paid (but nothing more).

In short, a call option (CE) is used when you expect prices to rise. The buyer of a call benefits if the underlying price goes above the strike price, as they can buy low (at the strike) and potentially sell high. Importantly, the maximum loss is limited to the premium paid for the call, while the profit potential is theoretically unlimited (the underlying asset’s price could keep rising with no fixed cap).

What is a Put Option (PE)?

Similar to calls, a Put Option (denoted as PE) is a contract that gives you the right (but not the obligation) to sell an underlying asset. Buying a put option is usually a bearish move – you expect the price of the underlying to go down. It’s essentially insurance against a drop in price.

• Example (Banknifty Put): Imagine the Banknifty index (an index of banking stocks) is at 40,000. You worry that banking stocks might fall in the next month. You could buy a put option with a strike price of 39,000 (a Banknifty 39000 PE) expiring in a month. This put gives you the right to sell the Banknifty (or equivalent cash value) at 39,000 even if the market falls below that. If by expiry Banknifty falls to 38,000, your put option is valuable – you can effectively sell at 39,000 while the market is at 38,000, netting a 1,000-point gain per unit (again, you would likely sell the option for profit). When the underlying’s price drops, the price of the put option typically rises (because the option becomes more valuable as insurance). If Banknifty stays above 39,000 and doesn’t drop as you expected, the put may expire worthless and your loss is limited to the premium you paid.

So, you can use a puts when you expect prices to fall or want to protect against a fall. The put buyer profits if the underlying price goes below the strike price. Unlike short-selling a stock (which can have unlimited loss if the price soars), buying a put option has a capped risk – you can’t lose more than the premium paid. The profit potential for a put option buyer is significant but limited by the fact that an asset’s price cannot fall below zero. (For example, if you buy a put on a stock, the maximum gain happens if the stock price goes to ₹0 – you’d earn the difference between the strike price and zero.)

Basic Options Terminology: Strike Price, Premium, Expiry, etc.

To understand CE and PE better, let’s clarify some basic option terms:

• Underlying Asset: This is what the option derives its value from – for example, a stock (like Reliance Industries), an index (like Nifty 50 or Banknifty), etc. If you trade Nifty options, the underlying asset is the Nifty index itself.
  
• Strike Price: The price at which you have the right to buy (for a call) or sell (for a put) the underlying. It’s a critical part of the option contract. In our examples, 18,200 was the strike for the Nifty call, and 39,000 for the Banknifty put.
  
• Premium: The price of the option contract. This is the amount you pay (per lot) to buy the option. For instance, an option might have a premium of ₹100. Option premiums are determined by the market and fluctuate based on various factors (we’ll discuss those factors later). The premium is paid upfront by the buyer to the seller of the option. It represents the option’s current value.
  
• Expiry Date: Every option has an expiration date, after which it expires (becomes invalid). In India, stock options and index options have monthly expiries, and popular indices like NSE’s Nifty50 and BSE’s Sensex also have weekly options. (e.g., every Wed and Tuesday respectively for weekly options). On the expiry date, if your option is in the money (profitable to exercise), it might be automatically settled; if it’s out of the money (not profitable), it will expire worthless.
  
• Lot Size: In the stock market, options are bought and sold in lots (fixed quantities). For example, Nifty options have a lot size (number of units per contract) – say 75 units per lot (this can change as defined by the exchange). So if you buy one Nifty call option contract, you’re actually trading 75 units of Nifty index value. Lot sizes ensure standardization of contracts.
  
• In the Money (ITM), At the Money (ATM), Out of the Money (OTM): These terms describe the relationship of the strike price to the current underlying price. For a call, ITM means the strike is below the current price (option has intrinsic value), ATM means strike is roughly equal to current price, and OTM means strike is above current price (no intrinsic value yet). For a put, ITM means the strike is above the current price, ATM is at current price, and OTM is below current price. For example, if Nifty is 18,000: a 17,500 CE is ITM, 18,000 CE is ATM, 18,500 CE is OTM; meanwhile a 18,500 PE is ITM, 18,000 PE is ATM, 17,500 PE is OTM. Beginners don’t need to memorize all these terms immediately, but knowing them helps in understanding option pricing.
  

Understanding these basics – what the contract allows, the strike price level, the cost (premium), and the time to expiry – is essential before you start trading options. Without a grasp of concepts like strike price, expiry, and premium, trading options is basically gambling rather than informed trading. So, make sure these terms are clear in your mind.

How Traders and Investors Use CE and PE

Traders often use CE and PE options to speculate on short-term market moves. Since options can give outsized returns for a correct call (because of leverage), traders buy call options if they expect a bullish move, or buy put options if they expect a bearish move. For instance, if a trader expects a big rally in the market ahead of an important event (like a budget announcement or earnings report), they might purchase Nifty call options (CE) to profit from the rise. Conversely, if there’s fear of a market drop (say due to global news or weak economic data), traders might buy put options (PE) on indices or stocks to profit from the fall. Options are popular for weekly trading as well – Banknifty weekly options were famous for high volatility; intraday traders sometimes buy Banknifty CE or PE on expiry day trying to catch quick moves (though this is very high risk). Note that weekly options in Banknifty are now discontinued. 

Investors typically use options in a more protective or strategic way:

• Hedging: Investors who hold a portfolio of stocks may buy put options as an insurance. For example, if you have a lot of banking stocks and worry about a short-term drop, buying a Banknifty PE can hedge your portfolio – if the stocks fall, the put rises in value, offsetting some losses. This way, put options act like a safety net.
  
• Generating Income: Some investors sell call options against stocks they own (known as a covered call strategy) to earn premium income. While this is an advanced strategy (not covered in detail here), it’s a way investors use CE options to generate extra returns if they expect the stock to stay flat or go down a bit.
  
• Locking a Purchase Price: If an investor wants to buy a stock in the future but is worried the price might shoot up, they could buy a call option to lock in the current price. For instance, if Reliance Industries is ₹2400 per share and an investor plans to buy it soon but fears it might jump, buying a 2400 strike call ensures they can purchase at ₹2400 later even if the market price rises above that.
  

Options thus provide flexibility. They allow you to benefit from price swings without owning the underlying asset outright. They also help in risk management: you can hedge and limit losses in a downturn. In fact, options are often used to manage risk or speculate on short-term swings in a cost-efficient way. Remember, trading options can yield quick profits but also comes with high risk – so it’s important to use them wisely, as we’ll discuss in the do’s and don’ts.

Difference Between CE and PE Options

At a fundamental level, the difference between a Call (CE) and a Put (PE) comes down to the rights they give and when they profit:

• Right to Buy vs Right to Sell: A CE gives the right to buy the underlying at the strike price, whereas a PE gives the right to sell the underlying at the strike price. For example, a Nifty 18200 CE gives you the right to buy Nifty at 18,200; a Nifty 18200 PE gives you the right to sell Nifty at 18,200.
  
• Market View (Bullish vs Bearish): Traders buy calls (CE) when they are bullish, expecting the price to rise. Traders buy puts (PE) when they are bearish, expecting the price to fall. If you think “market will go up,” you consider a call; if you think “market will go down,” you consider a put.
  
• Profit Scenario: A call option buyer benefits when the underlying price goes above the strike price. A put option buyer benefits when the underlying price goes below the strike price. In other words, CE gains value in a rising market, while PE gains value in a falling market. For example, if a stock’s current price is ₹100:
  
  • A ₹90 strike call (CE) is already in profit if exercised (buy at ₹90 vs market ₹100) – it’s in the money. If the stock rises to ₹110, the call’s value increases further.
    
  • A ₹110 strike put (PE) is in profit if exercised (sell at ₹110 vs market ₹100) – it’s in the money. If the stock falls to ₹90, the put’s value increases.
    
• Upside vs Downside Potential: For a call option buyer, the upside profit potential is unlimited – theoretically, if the underlying keeps rising, the call’s value can keep increasing without a fixed cap. For a put option buyer, the profit is limited by the underlying dropping to zero at best (so the maximum gain is strike price minus zero). Both call and put buyers have limited risk, though – the most you can lose is the premium paid. (Option sellers/writers, by contrast, have opposite payoff profiles – but as a beginner, focus on buying first before thinking of selling options, because selling carries higher risk.)
  
• Exercise and Obligation: If an option is in the money at expiry, a call holder can choose to exercise and buy the asset, while a put holder can exercise and sell the asset. However, exercising is not obligatory – you won’t be forced to buy or sell if you don’t want to; you can let the option expire if it’s not favorable. (In India, index options are cash-settled, so exercising just means you get the profit in cash. Stock options result in actual buying/selling of shares if held to expiry and exercised.)
  

CE vs PE = Bullish vs Bearish, Right to Buy vs Right to Sell. They are two sides of the same coin that let you trade market direction with limited risk. Understanding this difference will help you choose the right option type based on your market view.

Why CE and PE Option Prices Change

Option prices (premiums) for CE and PE aren’t static – they move every day, even every second, in the market. Several key factors cause the prices of call and put options to change:

• Underlying Asset Price: This is the most obvious factor. If the underlying’s price goes up, call options (CE) generally increase in price, while put options (PE) decrease in price (because a rising market makes calls more valuable and puts less valuable). If the underlying price goes down, put options gain value and call options lose value. Essentially, the option’s value moves in anticipation of how likely it is to be in profit by expiry. In our earlier example: as Nifty moved from 18,000 to 18,300, the 18,200 CE became more valuable (more in the money), whereas a 18,200 PE would lose value.
  
• Underlying Asset Price: This is the most obvious factor. If the underlying’s price goes up, call options (CE) generally increase in price, while put options (PE) decrease in price (because a rising market makes calls more valuable and puts less valuable). If the underlying price goes down, put options gain value and call options lose value. Essentially, the option’s value moves in anticipation of how likely it is to be in profit by expiry. In our earlier example: as Nifty moved from 18,000 to 18,300, the 18,200 CE became more valuable (more in the money), whereas a 18,200 PE would lose value.
  

• Time to Expiry (Time Decay): Options are wasting assets – they have value only until their expiry date. With each day that passes, especially as you near expiry, an option’s premium tends to decrease if everything else is constant. This is known as time decay (or Theta decay). An option’s price has two components: intrinsic value (if any) and time value. The time value portion shrinks as the clock ticks towards expiry. Importantly, this decay accelerates as expiry approaches. For instance, a week before expiry, a Nifty option might lose a few rupees per day in time decay; on expiry day, an out-of-the-money option can lose value very rapidly (even minute by minute). Many beginners underestimate how quickly an option can lose value if the market doesn’t move in their favor in time. Always remember: time is not a friend to option buyers – if your view doesn’t play out quickly, the option’s value will erode.
  
• Volatility: Volatility refers to how much the underlying asset’s price swings. Higher implied volatility increases option premiums for both calls and puts. This is because when the market expects big moves (up or down), any option has a greater chance to end up in the money or with a larger intrinsic value. So, if volatility spikes (say due to an upcoming election or budget announcement), even if the underlying price hasn’t moved yet, both CE and PE prices may rise. Conversely, in calm markets with low volatility, option premiums tend to be cheaper. Traders should be aware of volatility; buying options when volatility is extremely high can be risky if the volatility drops later (premiums could deflate).
  
• Interest Rates and Cost of Carry: This factor has a smaller impact on short-term options, but in theory, higher interest rates increase call option prices and decrease put option prices. The intuition is that holding the underlying asset has a financing cost (or opportunity cost), and calls give you exposure without buying the asset upfront. In practice, for index options like Nifty, interest rate changes are gradual and usually a minor component of pricing. It’s an advanced factor, but worth noting.
  
• Dividends (for stock options): If the underlying is a stock that pays dividends, it can affect option prices. Generally, before a dividend, call options might drop slightly (since the stock price is expected to drop by the dividend amount on ex-dividend date) and put options might rise slightly. For index options like Nifty, this isn’t a factor (the index dividend effect is spread out).
  
• Market Sentiment and Demand: Sometimes, the demand for calls vs puts itself moves prices. If a lot of traders are suddenly very bullish and rush to buy call options, the increased demand can drive call premiums up (and put premiums down) beyond what standard models predict. This is often reflected in the Put-Call Ratio and option chain dynamics. Broadly, optimistic sentiment = pricier calls, cheaper puts; fearful sentiment = pricier puts, cheaper calls.

All these factors work together. Option pricing models (like Black-Scholes) quantify these effects through “Greeks” – Delta (sensitivity to underlying price), Theta (time decay), Vega (volatility sensitivity), etc. For a beginner, you don’t need to calculate Greeks, but understanding the concept of each factor is important. In summary, CE and PE prices change due to underlying price movements, the ticking clock to expiry, changes in volatility, and other factors like interest rates and sentiment. Keep an eye on these when trading; for example, even if the stock doesn’t move, your option price can change due to time decay or volatility shifts.

Basic Do’s and Don’ts for Beginners Using CE/PE

Trading options can be exciting and profitable, but it’s also easy to make mistakes if you’re new. Here are some basic do’s and don’ts for beginners dealing with call (CE) and put (PE) options:

Do’s

• Do learn the basics thoroughly: Before you trade, educate yourself about how options work – what CE and PE mean, how strike price and expiry affect options, etc. As mentioned, jumping in without understanding is like gambling. Take time to read guides or take courses on options. Knowledge is your first line of defense.
  
• Do have a clear plan and risk management: Decide your investment or trading plan upfront – know why you are buying a particular call or put, what your target is, and how much loss you can tolerate. Options can move quickly, so set some rules (for example, you might decide to exit an option if it loses 50% of its value to limit risk). Also, use only as much money as you can afford to lose in worst case. Position sizing is key; don’t put your entire capital on one option trade.
  
• Do start small: In the beginning, trade with a small amount or even practice on paper (simulated trading) to see how option prices move. Once you gain confidence and consistency, you can gradually increase your trade size. Starting small also helps you survive the learning phase without devastating your account.
  
• Do diversify and be selective: If you want to trade options regularly, don’t bet everything on one stock or one direction. Maybe try options on different indices or stocks (Nifty, Banknifty, etc.) rather than only one, so that one bad move doesn’t hurt you too much. Also, be selective – not every day or every move is worth trading. Sometimes the best trade is not trading (for instance, when the market is extremely volatile and you have no clear view).
  
• Do stay aware of market events: Keep an eye on news, earnings, economic events, or policy announcements that can cause big moves. For example, an RBI policy meeting can swing Banknifty wildly – if you hold options during such events, be prepared for volatility. Being informed will help you avoid surprises, or you can choose strikes/expiries more wisely knowing what’s ahead.
  
• Do use tools and analysis: Basic technical analysis (like trend lines, support/resistance levels, moving averages) or data like open interest buildup can aid your decision on which strike to pick or when to enter. Oihelper’s unique tools like True Trend are especially useful for finding overbough and oversold situations using its True RSI analysis. For instance, if Nifty has a strong support at 18,000, you might avoid buying a put with strike 18,000 unless that support breaks. Similarly, option chain data can show which strikes have heavy trading (which can hint at important levels). While you don’t need complex strategies as a beginner, using these tools can give you an edge in making better trades rather than random guesses. 

Don’ts

• Don’t trade options without understanding the risks: Options can be very risky if misused. Never buy a CE or PE just because someone gave a “hot tip” or because it’s cheap. Understand that you can lose 100% of the premium you pay if the market doesn’t move as expected. Treat options with the same respect you’d treat any investment.
  
• Don’t ignore time decay: Time decay (Theta) is constantly chipping away at an option’s value. A common mistake new traders (including myself when I started) make is holding onto an option for too long, hoping it will turn profitable. I once bought a call option that stayed flat for days; I held it thinking “maybe tomorrow it will jump.” Instead, the price slowly kept dropping even though the stock hadn’t moved – that was time decay at work. By expiry, it lost most of its value. Avoid holding far-out-of-the-money options until the last minute – as expiry nears, if they are still OTM, their value can drop to near-zero very quickly. If your trade hasn’t worked out and expiry is approaching, it might be better to exit and cut loss, rather than hoping for a last-minute miracle. Remember, time is the enemy of option buyers.
  
• Don’t “chase” extremely cheap OTM options for lottery gains: It’s tempting to buy options that cost only a few rupees (far OTM strikes), imagining that if a big move happens you’ll make a fortune. In reality, those far-out-of-the-money options are cheap for a reason: they have a very low probability of ending in the money. Many inexperienced traders are drawn to buying heaps of cheap OTM CE or PE expecting a jackpot, but often they expire worthless. I learned this the hard way as well – I once bought a bunch of cheap Banknifty OTM call options before an expiry, hoping for a surprise rally. The rally never came and I lost 100% of that investment. Such high-risk bets often result in losses for beginners. It’s fine to take calculated risks, but don’t make a habit of gambling on long-shot bets.
  
• Don’t put all your money in one trade: This is part of risk management, but it’s worth emphasizing. Because options are leveraged, a single trade can either double your money or wipe out a large portion of it. No matter how sure you feel about a trade, never bet the farm. Spreading out risk is wiser. For example, instead of using ₹10,000 on one strike, you might use ₹5,000 on that and keep ₹5,000 for another opportunity or as backup. This way one mistake won’t knock you out of the game.
  
• Don’t forget the impact of volatility: After a big event or during panic, implied volatility can drop or spike. A mistake would be buying options when volatility is at a peak (premiums inflated) and then after the event, the stock might move in your direction but the option still loses value because volatility dropped (known as a volatility crush). Beginners sometimes get confused when they “predicted right” but still lost money due to such factors. So, avoid trading right before major announcements unless you understand volatility’s impact, or consider strategies that account for it.
  
• Don’t jump into complex strategies or selling options immediately: As a beginner, stick to basic buying of calls and puts. It might be tempting to try strategies like writing (selling) options for premium or doing multi-leg spreads you heard about. But writing options can have unlimited risk if the market moves against you, and complex spreads require precise execution. Many seasoned traders suggest mastering straight calls and puts first. Only when you are comfortable with how options move should you explore advanced strategies.
  

By following these do’s and don’ts, you can avoid the most common pitfalls. Many new traders have stories of losses that taught them these lessons. For instance, it’s almost a rite of passage to lose money on a seemingly sure bet that didn’t pan out, teaching the value of caution and planning. The key takeaway is: approach CE and PE trades with knowledge, a plan, and discipline. Options trading is a marathon, not a sprint – it’s better to grow slowly as a knowledgeable trader than to rush and blow up your account.

Before you go, 

Call options (CE) and Put options (PE) are powerful financial tools in the stock market that can boost profits and protect investments when used correctly. We explained that a CE gives the right to buy (used when bullish), and a PE gives the right to sell (used when bearish), and covered how basic terms like strike price, premium, and expiry come into play. With examples from Nifty and Banknifty, we saw how these options work in practical scenarios. We also discussed why option prices fluctuate – influenced by the underlying price, time decay, volatility, etc. For anyone starting out, the most important things are to build a strong foundation, use options carefully (for hedging or informed speculation, not reckless gambling), and be mindful of risks and common mistakes. Treat your early trades as learning experiences.