What are CE and PE in the Stock Market? Understanding Options Trading
2 April, 2025
Synopsis
A call option gives you the right, but not the obligation, to buy a stock at a fixed price at a future date.
A put option gives you the right, but not the obligation, to sell a stock at a predetermined price at a future date.
As an investor, there are multiple ways to make investments or hedge your risks. For instance, you can consider intraday trading or delivery trading, or you can go the futures and options route. In this article, you can get information on what CE and PE are in the stock market.
What is CE in Stock Market?
Call Option or Call European is an investment method that grants you the right but not the obligation to purchase a stock at a predetermined price at a future date. You may consider a call option if you expect the price of the stock to increase.
CE Example
Let’s consider Company A’s stock costs ₹100 today. You think the price might go up soon, but you don’t want to spend ₹100 right now to buy the stock. Instead, you decide to buy a call option.
You pay ₹5 to get the option to buy Company A stock at ₹100 on 30th of next month. This ₹5 is the premium you pay for buying the option.
Here are two possible outcomes:
Outcome 1: The stock price goes up to ₹120
> Your call option lets you buy the stock for ₹100, even though it’s worth ₹120 now.
> You use your option, buy the stock for ₹100 and sell it for ₹120.
> Your profit is ₹120 (selling price) - ₹100 (buying price) - ₹5 (premium) = ₹15.
Outcome 2: The stock price stays at ₹100 or drops to ₹90
Your call option lets you buy the stock for ₹100. You stand to earn zero profit in this scenario, and hence you decide not to use the call option. You lose only the ₹5 premium you paid.
What is PE in Stock Market
Put Option or Put European is an option that grants you the right but not the obligation to sell a stock at a predetermined price on a specific date. You may consider a put option if you expect the price of the stock to decrease.
PE Example
Let’s consider Company A’s stock is currently priced at ₹100. You think the stock price might go down soon, but you don’t own the stock right now. Instead, you decide to buy a put option.
You pay ₹5 as the premium to get the option to sell Company A stock at ₹100 on 30th of next month.
Like the call option, here are two possible outcomes:
Outcome 1: The stock price falls to ₹80
> Your put option lets you sell the stock for ₹100, even though it’s worth only ₹80 now.
> You use the option. To make this work, you buy the stock in the market for ₹80 and immediately sell it for ₹100 using your option.
> Your profit is ₹100 (selling price) - ₹80 (buying price) - ₹5 (premium) = ₹15.
Outcome 2: The stock price stays at ₹100 or goes up to ₹110
Your put option lets you sell the stock for ₹100, but there’s no profit to be made here. Therefore, you decide not to use the option. You lose only the ₹5 premium you paid.
Difference Between CE and PE
The below table highlights the key differences between CE and PE:
Parameters | Call Option (CE) | Put Option (PE) |
Definition | Gives you the right to buy a stock at a fixed price. | Gives you the right to sell a stock at a fixed price. |
Market View | Considered when you expect the stock price to go up. | Considered when you expect the stock price to go down. |
Holder’s Right | Buy the stock at the strike price. | Sell the stock at the strike price. |
Profit Scenario | Stock price goes above the strike price. | Stock price goes below the strike price. |
Loss Scenario | Stock price stays below the strike price or doesn’t increase enough to cover the premium. | Stock price stays above the strike price or doesn’t decrease enough to cover the premium. |
Trade Effortlessly With HDFC Securities 2-in-1 Demat Account
It is mandatory to have a Trading Account along with a Demat Account to trade in options. HDFC Securities offers the convenience of 2-in-1 Account where you can open both Demat and Trading Accounts simultaneously.
FAQs
How can CE and PE options be used to make a profit?
You can use CE options to make a profit when the stock price is higher than the predetermined price. On the other hand, you can use PE options to make a profit when the stock price is lower than the predetermined price.
What are the trading strategies for CE and PE options?
A few options trading strategies include bull call spread, bull put spread, bear call spread, bear put spread and long straddles and short straddles.
Can CE and PE options be used for long-term investing?
Generally, options trading can be used for short-term investing.
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*Disclaimer: Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.
