Call and Put Options

Description: Options Trading, Call Options, Put Options, Call, Put, Call Options

An option is the right but not an obligation to convey a piece of property. The person selling or granting the option is called the options seller and the person who has the right to execute option is called the options buyer. The options buyer pays fees (premium) for the options to the options seller.

Options can be in one of two forms:

• Calls or call options - call options gives the right to the options buyer to buy an underlying asset from the options seller at a specific price (strike price) before the specific date (expiration date);
•  Puts or put options - put options gives the right to the options buyer to sell an underlying asset to the options seller at a specific price before the specific date.

Call Options

A call option (often simply named as "calls") is a contract between two parties. The buyer of the call option has the right but not an obligation to buy the underlying assets (stocks) before the expiration date at strike price. The call options seller is obligated to sell the underlying assets if the options seller decided to exercise his/her right.

A trader who buys call options expects the price of the underlying assets (stock) to move up in the future but before the options expire. On the other hand an options seller expects that the price of the underlying assets will drop and call options will expire worthless.

Call options deliver profit when the stock price moves up. Call options called in-the-money if the current underlying assets (stock) price is above the strike price. Out-of-the-money call options are calls with strike price below the current stock price.

Put options

The same as call options the put options (simply called as "puts") is a contract between two parties: buyer and seller. The difference is that in case of the put options the options buyer buys the right to sell (not buy as in case with calls) the underlying assets (stock) at specific price and before the specific date. In exchange for this right the options buyer pays premiums to the options seller who is obligated to buy the underlying stock at a strike price if the options buyer decides to exercise the right to sell before the expiration date.

The put options buyer expects the price of the underlying stock to drop, while the put options seller would profit on the rising market. In Bear market the put price is rising and in the Bull market, the put price is dropping.

The most popular and widely-known options are options a particular company shares (stock options). However, you may find the options that are traded on many other assets: currencies, interest rates, gold, crude oil, etc.

 

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