What is the difference between a call and a put option?

A call option is the right to buy a stock at a specific price by an expiration date, and a put option is the right to sell a stock at a specific price by an expiration date. That's the short summary of these options contracts. Now, let's take a closer look at how call and put options work, as well as the risks involved with options trading.

How does a put option work?

A put option is a contract tied to a stock. You pay a premium for the contract, giving you the right to sell the stock at the strike price. You're able to execute the contract at any point until its expiration date. If the price of the stock decreases enough, then you can sell your put option for a profit.

Should you buy call and put options?

The risk of buying both call and put options is that they expire worthless because the stock doesn't reach the breakeven point. In that case, you lose the amount you paid for the premium. It's also possible to sell call and put options, which means another party would pay you a premium for an options contract.