Calls, Puts and Contracts: Why Options Are Not Traded in Single Shares
A call is a bet on rising prices. A put is a bet on falling prices. But you cannot buy just one — options are traded in standardised contracts, or lots. Here is what that means and why it works that way.
Options come in exactly two flavours: calls and puts. That is it. Every options strategy in existence — from the simplest to the most complex — is built from these two building blocks. Understanding what each one does is the foundation of everything else.
Call Options: You Expect Prices to Rise
A call option gives the buyer the right to purchase the underlying asset at a predetermined price — called the strike price — at any time before the contract expires. You buy a call when you believe the price is going to go up.
Call Option in Plain English
A stock is currently trading at $100. You buy a call option with a strike price of $100, expiring in one month, for a premium of $4. If the stock rises to $120, you can buy it at $100 (your strike) and sell at $120 — a $20 gain, minus your $4 premium = $16 profit. If the stock falls to $80, you do nothing. You only lose the $4 premium you paid.
Put Options: You Expect Prices to Fall
A put option gives the buyer the right to sell the underlying asset at the strike price before expiry. You buy a put when you believe the price is going to fall.
Put Option in Plain English
The same stock is at $100. You buy a put option with a strike of $100 for a $4 premium. If the stock falls to $75, you can sell it at $100 (your strike) even though the market price is only $75 — a $25 gain minus the $4 premium = $21 profit. If the stock rises to $120 instead, you do not exercise. You lose your $4 premium.
| Call Option | Put Option | |
|---|---|---|
| You believe... | Price will rise | Price will fall |
| Gives you the right to... | Buy at the strike price | Sell at the strike price |
| Profitable when... | Underlying rises above breakeven | Underlying falls below breakeven |
| Max loss (buyer) | Premium paid | Premium paid |
| Max profit (buyer) | Unlimited | Strike price minus premium (underlying can only go to zero) |
Why Are Options Not Traded as Single Shares?
When you buy a share, you buy one share (or as many as you want). Options do not work that way. They are sold in standardised contracts that represent a fixed number of shares. This standardisation exists so that exchange-traded options can be priced uniformly, compared easily, and processed efficiently by the exchange's clearing systems.
In the United States: Contracts of 100 Shares
On US exchanges, one standard options contract represents 100 shares. So when you see an Apple call quoted at $5.00, that $5 is the premium per share. Your actual cost for one contract is $5 × 100 = $500.
The Quoted Price Is Per Share, Not Per Contract
This catches a lot of beginners. If a broker shows you a premium of $3.50, your real cost for one contract is $3.50 × 100 = $350. Always multiply by 100 (US) or your lot size (India) to know the true cost of entry.
In India: Lot Sizes Set by SEBI
In India, the equivalent of a contract is called a lot. The lot size varies for each stock and index, and is set by SEBI (the regulator). It is reviewed periodically and can change. The lot size is designed to ensure a minimum contract value — roughly ₹5 to ₹10 lakhs per lot.
| Instrument | Lot size (approx.) |
|---|---|
| Nifty 50 | 25 units |
| Bank Nifty | 15 units |
| Sensex (BSE) | 10 units |
| Large-cap stocks | Varies — typically 250 to 2,000 shares per lot |
Always Check the Current Lot Size
Lot sizes change. SEBI reviews them quarterly. Before trading any stock or index option in India, check the current lot size on NSE's website or your broker's platform. The lot size directly determines how much a single contract costs you.
Other Markets
In Europe, lot sizes vary by exchange and underlying. In South Korea, KOSPI 200 options are very widely traded and have their own contract multipliers. In China, SSE 50 ETF options use a lot size of 10,000 units. The principle is the same everywhere — standardised contract sizes for market efficiency.
Buyer vs Seller: Two Sides of Every Contract
For every option contract, there is a buyer and a seller. The buyer pays the premium and gets the right. The seller receives the premium and takes on the obligation. If the buyer exercises the option, the seller must fulfil it.
| Role | What you pay/receive | Max profit | Max loss |
|---|---|---|---|
| Call buyer | Pays premium | Unlimited | Premium paid |
| Call seller | Receives premium | Premium received | Unlimited (uncapped) |
| Put buyer | Pays premium | Strike minus premium | Premium paid |
| Put seller | Receives premium | Premium received | Strike minus premium (very large) |
Selling Options Is Very Different From Buying
Buying options has defined, limited risk. Selling (writing) options exposes you to much larger potential losses, especially on the call side where losses are theoretically unlimited. As a beginner, stick to buying calls and puts until you fully understand how options are priced and what risks option sellers take on.
Key Takeaways
- A call option gives you the right to buy the underlying at a fixed price — you profit when prices rise.
- A put option gives you the right to sell the underlying at a fixed price — you profit when prices fall.
- Options are traded in standardised contracts (called lots in India, contracts in the US), not single shares.
- In the US, one standard options contract covers 100 shares. In India, lot sizes vary by stock and index.
- The premium quoted is per share — multiply by the lot size to know what you are actually paying.