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The Basics of Calls and Puts

November 27th, 2012

Call v. Put

Call

  • Allows you to buy stock
  • If you have one call that means you are able to buy that stock at your set price
  • It has to reach the set price on or before your contract's expiration
  • If it doesn't reach the set price, your contract deteriorates in value and you lose your option premium
  • You buy it in hopes of stock going up
  • As the stock price goes up, the call increases in value
  • Similar to going long within stocks

Put

  • Allows you to sell stock (it gives you the right, but not the obligation)
  • For example: you own 100 shares of Microsoft at $25 and you own a put of Microsoft at $20
  • If the stock declines to $10/share and you have the put for that year, you can put somebody the stock at the $20 range
  • You buy it in hopes of stock going down
  • As the stock price goes down, the put increases in value
  • You are hoping to sell the contract later at higher value
  • Similar to short-selling

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

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