CE (Call European) and PE (Put European) Options

Options trading is gaining popularity in India for leveraged profits, hedging, and speculation. CE (Call European) and PE (Put European) are common option types on NSE and BSE. Understanding their meanings, behavior, and buyer/seller rights is essential

In Indian options trading terminology:

• CE stands for Call European
  

• PE stands for Put European

These are options that follow the European style of exercise, meaning they can be exercised only on the expiry date, not before.

CE (Call European)

A CE option gives the buyer the right (but not the obligation) to buy the underlying asset (such as a stock or index) at a predetermined strike price on the expiry date.

PE (Put European)

A PE option gives the buyer the right (but not the obligation) to sell the underlying asset at a predetermined strike price on the expiry date. All stock and index options in India follow the European-style settlement.

Below are examples of Call and Put options traded on NSE, illustrating key details and usage:

• Price of the Underlying Asset – Call options (CE) gain value when the underlying price rises, while put options (PE) gain when it falls.
  

• Strike Price – Options closer to being in-the-money have higher premiums.
  

• Time to Expiration – More time left increases premiums; value erodes faster near expiry.
  

• Market Volatility – Higher volatility raises premiums for both CE and PE.
  

• Interest Rates – Higher rates generally increase CE premiums and reduce PE premiums.
  

• Dividends – Expected dividends lower CE value and increase PE value.
  

• Market Sentiment – News, events, and overall sentiment can impact demand and prices.

• Covered Call – Hold stock and sell a CE to earn premium, limiting upside.
  

• Cash-Secured Put – Sell PE with funds ready to buy if assigned.
  

• Bull Call Spread – Buy a CE and sell a higher-strike CE for limited-risk bullish trades.
  

• Bear Put Spread – Buy a PE and sell a lower-strike PE for limited-risk bearish trades.
  

• Long Straddle/Strangle – Buy CE and PE to profit from big moves in any direction.
  

• Short Straddle/Strangle – Sell CE and PE to earn premium in range-bound markets.
  

• Iron Condor – Combine spreads to profit in low-volatility conditions with limited risk.
  

• Risk Reversal – Sell an OTM PE to fund buying an OTM CE for a bullish outlook.

Let’s take an example to explain:

Example 1: CE Option

• Stock: XYZ Ltd.
  

• Strike Price: ₹200
  

• Expiry: 25 July
  

• Premium Paid: ₹5
  

If XYZ’s stock price is ₹220 on expiry day, the CE option buyer can buy the stock at ₹200, realising a profit of ₹15 (₹220 – ₹200 – ₹5 premium).

Example 2: PE Option

• Stock: ABC Ltd.
  

• Strike Price: ₹150
  

• Expiry: 25 July
  

• Premium Paid: ₹4
  

If ABC’s stock price falls to ₹130, the PE buyer can sell it at ₹150, realising a gain of ₹16 (₹150 – ₹130 – ₹4 premium).

Options can be squared off before expiry for profit or loss, but exercise happens only on the expiry date.

The main components of Call (CE) and Put (PE) options include:

Here’s how the profits and losses are calculated:

CE Option Profit (on expiry):

Profit = (Spot Price – Strike Price – Premium Paid)

PE Option Profit (on expiry):

Profit = (Strike Price – Spot Price – Premium Paid)

Maximum loss for the buyer is limited to the premium paid.

In India, most options are cash-settled. This means on expiry:

• If CE or PE is in the money, the difference is paid in cash
  

• No physical delivery of shares in equity index options
  

Some stock options may require physical settlement at expiry

Call and Put options serve different purposes depending on market outlook and trading objectives:

Retail traders mostly use CE and PE for speculative or hedging purposes with limited capital.

CE and PE options give Indian traders flexible market exposure with defined risk. As European-style options, they simplify trading by eliminating early exercise. Knowing how to use them is key for hedging, speculation, and advanced strategies

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.