What are index call options?
The buyer of an index call option has purchased the right, but not the obligation, to buy the value of the underlying index at the stated exercise price before the option expires. Once the option is purchased the buyer owns, and is then "long," the call contract. When the owner exercises an in-the-money call contract he will receive the cash settlement amount (the difference between call's strike price and the exercise settlement value of the underlying index) in cash.

Potential Profit: Unlimited as the level of the underlying index increases
Potential Loss: Limited to premium paid for call

An investor who sells an option contract that he does not already own is known as the option "writer," and is then "short" the contract. The writer of an index call option, commonly referred to as the "seller," has the obligation to sell the value of the underlying index at the stated exercise price if assigned an exercise notice before the option expires. If assigned on an in-the-money contract, the call writer will pay the cash settlement amount (the difference between call's strike price and the exercise settlement value of the underlying index) in cash to an owner who has exercised a like contract.

Potential Profit: Limited to premium received from call's initial sale
Potential Loss: Unlimited as the level of the underlying index increases

What are index put options?
The buyer of an index put option has purchased the right, but not the obligation, to sell the value of the underlying index at the stated exercise price before the option expires. Once the option is purchased the buyer owns, and is then "long," the put contract. When the owner exercises an in-the-money put contract he will receive the cash settlement amount (the difference between put's strike price and the exercise settlement value of the underlying index) in cash.

Potential Profit: Substantial and increases as the level of the underlying index decreases to zero
Potential Loss: Limited to premium paid for put

An investor who sells an option contract that he does not already own is known as the option "writer," and is then "short" the contract. The writer of an index put option, commonly referred to as the "seller," has the obligation to purchase the value of the underlying index at the stated exercise price if assigned an exercise notice before the option expires. If assigned on an in-the-money contract, the put writer will pay the cash settlement amount (the difference between put's strike price and the exercise settlement value of the underlying index) in cash to an owner who has exercised a like contract.

Potential Profit: Limited to premium received from put's initial sale
Potential Loss: Substantial and increases as the level of the underlying index decreases to zero