Understanding options put and call
An option is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset a stock or index at a specific price on or before a certain date listed options are all for shares of the particular underlying asset. Understanding options put and call option is a security, just like a stock or bond, and constitutes a binding contract with strictly defined terms and properties. For most casual investors, that definition may as well be written in ancient Greek.
There are only two kinds of understanding options put and call Then you can either keep the shares which you obtained at a bargain price or sell them for a profit. But what happens if the price of the stock goes down, rather than up? You understanding options put and call the call option expire and your loss is limited to the cost of the premium. When you hold put options, you want the stock price to drop below the strike price.
If it does, the seller of the put will have to buy shares from you at the strike price, which will be higher than the market price. Because you can force the seller of the option to buy your shares at a price above market value, the put option is like an insurance policy against your shares losing too much value.
Purchasing options can give you a hedge against losses, and in that sense, they can be used conservatively. But there are many options strategies that amount to little more than gambling and can increase your risk to a frightening degree. Remember, when a call is exercised, stock must be delivered binare optionen bei der investitionen the seller of the call.
If a strong market advance or a major announcement by the issuer has driven the share price up sharply, your losses could be enormous. As indicated, many option strategies involve great complexity and risk. For this reason, not all options strategies will be suitable for all investors.
In fact, with the exception of sophisticated, high net worth individuals who can afford and are willing to incur substantial losses, the writing understanding options put and call puts or uncovered calls would be unsuitable for just about everyone. Understanding options put and call, brokers sometimes engage in inappropriate options trading on behalf of customers who do not understand the risks.
If you have lost assets because your stockbroker was engaging in options trading, please contact us today. Put Options and Call Options Perhaps we can explain options a bit more clearly.
Option trading can be a great way to make money, offering strategies for traders from beginner level to the most advanced.
Before we can begin to make it work, though, there a few basic things that we need to understand. A listed stock option must be one of only two things:.
It sounds simple with only two elements, but then so do the numbers 0 and 1. The exchanges specify the standardized terms of every option contract. There are several exchanges, and all are coordinated through a central clearing house.
That asset is almost always shares of the stock of a given company, or of an exchange-traded fund. For example, the underlying asset might be shares of Apple stock. For each underlying assetthere are many different options available. Above is a understanding options put and call sample of the options for Apple stock for just one expiration date, December 16, The Strike column in the center of the chain lists the strike prices that are available. The columns to the left of the Strike column refer to call options, while those on the right refer to puts.
In this list that right is good through December Once you have paid for a call option you can buy one for the price shown in the Ask column, timesyou then have the right buy understanding options put and call stock at that price no matter what the market price of Apple stock is at some future date between now and expiration.
This will allow you to make money if Apple stock goes up while risking only a small fraction of the stock price. If you own the stock, this is like a guaranteed stop-loss. Besides the options listed above that expire in December, there are other expiration dates understanding options put and call as shown below:.
The expiration dates above range from November 11,which was just 2 days away when this article was written; to January 18,more than two years away. For every one of understanding options put and call expiration dates there is a list of available option strike prices that is similar to the one in the first diagram above, altogether there are over options for Apple stock.
Once you understand the world of options, all these possibilities are open. Stay tuned for future articles. If this piques your interest, check with your local center on option classes offered in your area. Disclaimer This newsletter is written for educational purposes only.
By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume understanding options put and call responsibility whatsoever for the actions of the reader.
The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.