What are the differences between Call Option and Put Option?

What are the differences between Call Option and Put Option?
In: Business.Investing Asked by: kennethchou Nov 18, 2007 - 83 Months Ago.  Viewed 40346 times



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The buyer of a "call" option pays for the right, without the obligation to BUY some underlying instrument FROM the writer of the option contract at a set future date and at the strike price. If the underlying price at that future date fluctuates above the strike price, the call option buyer will have a valuable contract.

The buyer of a "put" option pays for the right, without the obligation to SELL some underlying instrument TO the writer of the option contract at a set future date and at the strike price. If the underlying price at that future date fluctuates below the strike price, the put option buyer will have a valuable contract.

Basic trading strategies that involve puts and calls are:
1) BUY CALL = if you anticipate the price to rise quickly. (As you're paying for the right to buy, that right cost you money each day. So if the underlying price rises too slowly, you still lose.)

2) BUY PUT = if you anticipate the price to drop quickly. (Note that you're not legally allowed to buy put against any company you have directorship or officer positions, or of course if you have insider information.)

3) SELL CALL = if you anticipate the price will NOT rise quickly. You can hold the underlying stock, and sell (or WRITE) calls to enhance your income. But if the price does rise quickly, you limit your gains while giving up the unexpected gains.

4) SELL PUT = if you anticipate the price will NOT fall too much too quickly. You can WRITE a PUT to enter a stock at a real bargain. But if the stock crashes, you can still stand to lose a lot.
Answered by: EricC - 78 Months Ago.
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The basic difference:

* Call Option - You win when it goes UP. Your losses are limited if it goes DOWN.

* Put Option - You win when it goes DOWN. Your losses are limited if it goes UP.
Answered by: Neil W - 66 Months Ago.
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Call options give the person who buys the option the right to buy at a price within a given time period. A put option gives the buyer the right to sell at a given price within a time period.

The beauty of options is their optionality. Say you buy a put option to sell your XYZ stock at $50 when their current trading value is $55. If XYZ stays about $50, there's no need to exercise the option, so you paid for the risk minimization offered by the put to sell at $50 in the chance the stock fell below that level.

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Answered by: toponsmar - 36 Months Ago.
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Answered by: korsu001 - 3 Months Ago.
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What are the differences between Call Option and Put Option? What are the differences between Call Option and Put Option? - HelpGlobe.Business.Investing
 
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