SIE Ready✨ The big ideas of the SIE · Lesson 3 of 8 · 60 sec
Call Up, Put Down
Four words sort out almost every basic options question on the SIE: call up, put down.
💡 Key idea
Call buyers are bullish and break even at strike plus premium; put buyers are bearish and break even at strike minus premium.
🧠 Why it matters
A call gives its buyer the right to buy the stock at the strike price, so the buyer wants the stock to go up. A put gives its buyer the right to sell at the strike, so the buyer wants it to go down. Call up, put down also gives the breakeven: a call breaks even at strike plus premium (up), a put at strike minus premium (down). Sellers (writers) take the opposite side: they keep the premium and hope the option expires worthless.
📈 In the real world
Sam buys a 50 call for a $3 premium. Call up: his breakeven is $53. Jo buys a 50 put for $3. Put down: her breakeven is $47. If the stock sits at $50 at expiration, both options expire worthless and both writers keep $300.
📌 Takeaways
- Buying a call or writing a put is bullish; buying a put or writing a call is bearish
- Call breakeven = strike + premium; put breakeven = strike − premium
- One standard equity option contract usually covers 100 shares
📖 Terms in this lesson
CALL UP, PUT DOWN: Calls win when the stock goes up and break even at strike plus premium; puts win going down and break even at strike minus premium.
✅ Test yourself
An investor buys one XYZ 40 put for a premium of 2. What is the breakeven stock price?
- $38
- $36
- $42
- $40
Answer: A · $38
Put down: subtract the premium from the strike, 40 − 2 = 38. $42 would be a call's breakeven, $40 ignores the premium, and $36 subtracts it twice.
Which option position is bearish on the underlying stock?
- Buying a call
- Writing a put
- Writing a call
- Buying the stock
Answer: C · Writing a call
A call writer profits if the stock stays below the strike, which is a bearish view. Buying a call and writing a put are both bullish, and owning the stock is bullish too.
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