Lesson 2: Calls, Puts, and Moneyness
Promise: Know what a call and put actually pay, and say ITM/ATM/OTM instantly.
Quick Recap
In Lesson 1 you learned that an option is a contract with 5 parameters: underlying, strike, expiry, type, and size. You pay a premium upfront for a conditional payout at expiry.
Calls vs Puts
Call Option
Bullish
- You think price is going UP
- Bet that price will be ABOVE the strike
- The higher it goes, the more you make
Put Option
Bearish
- You think price is going DOWN
- Bet that price will be BELOW the strike
- The lower it goes, the more you make
The strike is the price level you're betting on. If you buy a $100k call, you're betting BTC will be above $100k at expiry. If you buy a $100k put, you're betting it'll be below.
Call = bullish. Put = bearish. Strike = the line in the sand.
Notice how the diagram labels your position "ITM" or "OTM" depending on where spot is relative to strike? That's called moneyness, and it's worth understanding properly.
Moneyness
Moneyness describes whether an option would pay out if it expired right now.
| Term | Meaning |
|---|---|
| ITM (In-the-Money) | Would pay out if expired now |
| ATM (At-the-Money) | Strike ≈ current price |
| OTM (Out-of-the-Money) | Would expire worthless now |
Example: BTC at $100,000
💡 Tip: Try answering each question yourself before revealing the answer.
See Also
Navigation: ← Lesson 1: What is an Option? | Lesson 3: Payoff vs P&L →