Learn hubBlogClear up the main confusion: a call and a put are two different contracts, each with its own buyer and its own seller.
It is easy to think that the one who bought a put stands against the one who bought a call. That is not so. A call and a put are two separate contracts. Each has its own buyer and its own seller.
In futures there is one contract: long against short. Here there are two contracts. In each — the one who bought against the one who sold.
The put from the lesson “Options: what they are”: the right to sell BTC at 80,000, premium 800. Its seller promises: “if the price is below 80,000, I will pay the difference”.
| Position | Premium | What it is | In profit if |
|---|---|---|---|
| Bought a call | pays 1,000 | the right to buy at 90,000 | price above 91,000 |
| Sold a call | receives 1,000 | promised to pay everything above 90,000 | price below 91,000 |
| Bought a put | pays 800 | the right to sell at 80,000 | price below 79,200 |
| Sold a put | receives 800 | promised to pay everything below 80,000 | price above 79,200 |
The result of each position at the same prices:
| Price on expiry day | Bought a call | Sold a call | Bought a put | Sold a put |
|---|---|---|---|---|
| 70,000 | −1,000 | +1,000 | +9,200 | −9,200 |
| 80,000 | −1,000 | +1,000 | −800 | +800 |
| 86,000 | −1,000 | +1,000 | −800 | +800 |
| 95,000 | +4,000 | −4,000 | −800 | +800 |
| 100,000 | +9,000 | −9,000 | −800 | +800 |
In futures “sold” means “short”. So it seems that one side opened a call and the other a put. No: a call and a put are two different instruments, like two tickers. Each has its own order book and its own “bought” and “sold”.
| Instrument | One side | Other side |
|---|---|---|
| Futures | long | short |
| Call | bought | sold |
| Put | bought | sold |
The check is simple. Both the call buyer and the put buyer paid a premium. In one trade only one side pays. So they are not the two sides of one trade.
| What the participant expects | What they do |
|---|---|
| The price will rise | buys a call |
| The price will not fall | sells a put |
| The price will fall | buys a put |
| The price will not rise | sells a call |
Four expectations — four positions. Two of them are rights that are bought. Two are promises that are written.
Futures are one contract, long against short. Options are two: bought call against sold call, bought put against sold put. Four positions, each with its own break-even price.
You bought a put. Who is on the other side of this trade?
Correct answer: The put seller — the one who wrote this contract