In options trading, a call option gives the buyer the right (but not the obligation) to buy the underlying asset at a specified strike price before the option expires. The dynamics of who benefits—buyer or seller—are based on the price movement of the underlying asset.
When Does the Buyer Benefit?
The buyer of a call option benefits when the underlying asset's price is above the strike price at the contract’s expiry.
Example:
Mr. Verma buys a call option for Infosys shares with a strike price of ₹1,200, expiring in one month.
- If Infosys shares rise to ₹1,300 by expiry, Mr. Verma can exercise the option to buy at ₹1,200 and potentially sell at ₹1,300, making a profit of ₹100 per share (before fees).
- If the share price is above ₹1,200, the buyer benefits by exercising the option.
When Does the Seller Benefit?
The seller of a call option (also known as the option writer) benefits when the underlying asset’s price remains below the strike price at expiry.
Example:
If Infosys shares close at ₹1,100 at expiry, Mr. Verma's call option will expire worthless.
- In this case, Mrs. Kapoor, the option seller, keeps the premium paid by Mr. Verma as profit.
What if...
| Scenario | Outcome |
|---|
| Underlying asset price rises above strike price at expiry | Buyer benefits; seller faces a loss |
| Underlying asset price remains below strike price at expiry | Seller benefits; buyer loses premium paid |
| The price moves slightly above the strike price | The buyer can exercise for a small profit; seller faces a small loss |
Tip: As the buyer, your goal is for the price to rise above the strike price, while as the seller, your goal is for the price to remain below the strike price.
Last updated: 27 Jun 2025
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