Option type is the most basic classification of an options contract: it is either a call option or a put option. Every other property of an option – strike price, expiry, the Greeks – builds on top of this distinction.
Call vs. Put#
A call gives the holder the right to buy the underlying asset at the strike price. A put gives the holder the right to sell at the strike price. Neither obligates the holder to act – the option can always expire unused, with the holder’s loss limited to the premium paid.
| Call | Put | |
|---|---|---|
| Right | Buy at strike | Sell at strike |
| Bullish / Bearish | Bullish | Bearish |
| Max loss (buyer) | Premium paid | Premium paid |
| Max profit (buyer) | Unlimited (theoretically) | Strike minus zero (asset can’t go negative) |
Option Style#
Option type (call vs. put) is separate from option style, which governs when the option can be exercised:
- American – exercisable at any time up to and including expiry.
- European – exercisable only at expiry.
- Exotic – any non-standard exercise rule. Includes barrier options (activate or deactivate at a price threshold), Asian options (payoff based on an average price), and perpetual options (no expiry at all).
Most DeFi options protocols use European-style settlement because it is simpler to implement in a smart contract – there is no need to handle early-exercise logic.
Options in Strategies#
Calls and puts are the building blocks of every options strategy. A few examples:
- Vertical spread – buy and sell options of the same type at different strikes to cap both risk and reward.
- Straddle – buy a call and a put at the same strike to profit from large moves in either direction, at the cost of paying two premiums.
- Protective put – hold the underlying asset and buy a put to limit downside.
The option spread page covers multi-leg structures in more detail.