Buying Calls

• Call buyers are bullish on the stock. The investor who buys a call owns the right to buy 100 shares of a stock at the strike price (the specified price at which the contract may be exercised) before the expiration date. The call buyer can also allow the contract to expire worthless. By paying a fee to the call seller, also called a "premium" to purchase the rights, an investor can profit from a rising stock while risking a relatively small amount of money on the premium.
  
  

Buying Puts

• Put buyers are bearish on a stock. A put buyer owns the right to sell 100 shares of a specific stock at the strike price before the contract expires. Like the buyer of a call, the buyer of a put is not obligated to exercise the right. By paying a premium to purchase the rights, an investor can profit from a falling stock price while risking only the premium.
  
  

Selling Calls

• Call sellers are bearish or neutral. By selling a call, the investor has an obligation to sell 100 shares of a specific stock at the strike price if the buyer of the call decides to exercise the contract. An investor who believes a stock's price will decline or stay the same can write calls. If the buyer of the call does not exercise the right to buy the stock, the seller of a call keeps the premium.
  
  

Selling Puts

• Put sellers are bullish or neutral on the price of the stock. A put seller has the obligation to buy 100 shares of a stock at the strike price if the buyer decides to exercise the contract. An investor who believes a stock price will increase or stay the same would sell puts. If the buyer of the put doesn't exercise his right, the put seller pockets the premium.
  
  

Break even

• When it comes to stock puts and calls, the break-even point is when the stock price reaches a point where the investor neither makes or loses money. The break-even point is different for buyers and sellers of puts and calls. For instance, for calls, the break-even point is found by adding the strike price and the premium. An investor who buys the call makes money when the price of the stock rises above the break-even point. The seller makes money as long as the stock price is below the break-even point.