Wednesday, January 8, 2014
Learning stock options call and put option trading
The Two Types The trade for stock options is fast becoming increasingly popular in the market these days. With its many trading advantages and high promises for financial profit, quite a few have become quite serious about buying and selling many of these stock options. Let us learn about the two types of these stock in order to better understand how to trade them. Knowing how each of these options would work to your benefit as the contract holder can surely come in handy with the volatile trends ongoing in the stock market. The two major types of option contracts are the call option and the put option. Each of these contracts holds rights and benefits for their owners. Let us discuss each of these and how they can be useful to you. Call Options A call option is a type of contract that gives its owner the right to buy the underlying stock at a certain fixed price (also called the strike price) within a specified time frame, which should be on or before the expiry date. The buyer of a call holds the right to purchase shares at the strike price until the date of expiry. The writer or the seller of the call on the other hand, holds the obligation. If a call buyer chooses to exercise his or her option by deciding to purchase the underlying share, then the call writer is then obliged to sell his or her share at the negotiated strike price. For example, an investor purchases a call option from a certain business with a strike price of $10, which will expire in two months, then that buyer secures the right to exercise their own option by paying the value of $10 for each share. The writer, on the other hand, would be obligated to give up the shares in the exchange for $10 for each of them. Put Stock On the other hand, a put option is the complete opposite of the previous. It is a contract that allows one to sell the underlying stock at a specific price on or before the expiry date. A put purchaser secures the right to sell shares at the strike price, and following this, a put writer will then be obliged to sell at the negotiated price.