Are Puts riskier than Calls?

The short answer is NO. Puts are not riskier than calls. This is also true for the opposite. Calls are not riskier than puts either. The long answer is, it’s way more complicated than picking a yes or no. It depends on a few factors and that is usually the case with options a lot of times.

Options are almost always fairly priced. The price you see at the moment is the fair value for it. If you see an option not fairly priced, there is no way you can take advantage of it as a retail trader. Algorithmic trading by big institutions will make that disappear before you can even decide how to take advantage of it.

Why do people ask this?

If you are looking at the options prices in an index, you will notice that the puts cost more than the calls. For example, I am looking at a SPY option with a strike that is $10 out of the money and compare it against a call that is $10 out of the money. SPY is around $415 so I am going to look at the $405 put and the $425 call.

$405 put cost $792 while the $425 call cost $480. That is a difference of $312. I am looking at SPY options that expire in the July cycle which is 54 days away.

Both of them are about $10 away from the stock price. The chances of stock moving up or down $10 should be somewhat the same. If the probability of the stock reaching $405 or $425 is the same, then the risk is the same….. but if the risk is the same then why does the put cost $312 more than the call?

Why are puts more expensive than calls?

The basic supply and demand model is in action when it comes to options pricing. Most portfolios are usually buy and hold portfolios. So the “cheapest” way to protect a portfolio from an unforeseeable market crash is to buy a put. So looking at the SPY example from above, you can say more people are buying the $405 puts compared to the $425 calls so they can get better sleep at night, then that naturally pushes up the prices of puts making them more expensive than calls.

The old adage of the market takes the stairs up and the elevator down plays a role in this. Nobody really knows when the market is going to crash but when it does, it usually happens very quickly. 

Whenever I look at my brokerage account, I am hoping for a sea of green with all the stocks I own going up. I don’t look at how much it has gone by. As long as it’s moving up, I am making money and my portfolio is doing better. It’s usually a tiny percentage and it’s grinding up slowly. But when there is a red day, I am looking at how much it’s down by and the panic sets in after depending on how bad of a day it is.

I have a small portfolio and I panic even though I am fairly confident that the stocks I own will eventually come back up. Now let’s imagine a professional money manager who has to answer to investors. Does paying up for puts seem all that bad if your job is potentially on the line?

Are puts always more expensive than calls?

I picked SPY and mentioned Index earlier on purpose. I looked at options 60 days out and almost 1000 days out and I couldn’t find an option cycle when calls are more expensive. I can’t think of a time I remember seeing calls being more expensive in the Index. So while Puts are usually more expensive in every underlying, that is not always the case. I can think of 2 scenarios where the calls are more expensive than puts.

1. Melt up in a stock

This is usually for whatever stock or industry is the talk of the town at the moment. This happened with Tesla in 2019. GameStop in Feb 2021. Almost all SPACs at the end of 2020 and beginning of 2021. Tilray in 2018 pretty much after they went public.

A melt up is when there is a sudden big up move in a stock and it keeps doing that for a few days where that’s the only stock people talk about. That’s when everyone is running to buy far out of the money calls like the $800 strikes in GME because any strike remotely close to the stock price is way too expensive for anyone to afford. The allure of great riches you see on Reddit and full-blown FOMO gives you the impression that you can still mint money with those far out of the money calls.

These are risky as hell because the big move has already happened and you are looking at very expensive calls when people are trying to lock in their profits and get out of the stock. You are going to be left holding the bag in that scenario.

I don’t have any great examples like the GME one right now. I don’t have a stock that is exactly melting up either. However, I have Roblox that has gone up by almost 20% in 3 days and the calls are more expensive.

Roblox (RBLX) closed at $82.50 on Friday and I am looking at the $75 strike put that is $7.5 out of the money to the downside and the $90 call that is $7.5 out of the money to the upside. The $90 call cost $585 and the $75 put cost $510. The call cost $75 more than the put even though it’s equally far away from the stock.

A 20% up move in the stock in the last 3 days has made everyone more hopeful that it will continue going up so why not get on this before it’s too late. This is driving more demands for the $90 calls compared to the $75 puts. I consider this very speculative and basically gambling. This is a scenario where there is more risk to the upside and you could argue that calls are riskier than puts in this case.

2. Options far into the future in individual stocks

This would be like a regular investment in my opinion. I am going to look at Facebook as an example.

Facebook is trading around $316 right now and I am looking at options that expire in June 2023. The $310 put which is $6 out of the money is priced at $5895 while the $325 call that is $9  out of the money is trading for $6320. The call is much further out of the money compared to the put I have chosen but it’s priced higher.

Since the stock market usually goes up over time it only makes sense that calls cost more because they have a higher likelihood of being in the money and that’s where you are going to see demand.

At the same If you are to look at options in the index like SPY, QQQ or IWM, those will still have the puts priced higher because they are going to be used as insurance against the calls like Facebook above.


There is a lot more information when it comes to how options are priced. But the question of whether puts are riskier than calls isn’t something that you should really consider as a blanket statement. There is no one answer that completely satisfies this question. 

This really plays into the statement of high-risk high reward low-risk low reward. You can generally look at it as if puts are more expensive, that’s where the risk is perceived to be by the market at that moment and that typically means that’s the direction you can find a higher reward.

Even then you will only enjoy this reward if the stock moves in the direction you want whether it’s a put or a call. When I see a “pricey” put, I’m not thinking it’s riskier. I’m thinking there’s more demand for these puts because people are trying to hedge their long portfolios. And that’s just the cost of doing business.

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