What is the difference between call and put options?

Call option and Put option are the two main types of options available in the derivatives market. A Call option is used when you expect the prices to increase/rise. A Put option is used when you expect the prices to decrease/fall. Warren Buffett has described derivatives as weapons of mass destruction.

What are the risks associated with call and put options?

When buying, your risk is equal to the premium paid. Theoretically, options sellers face unlimited risk. If you’re selling options, you should sell calls if you expect prices to fall, and sell puts if you expect them to rise. This will let you pocket the premium without worrying about the buyer exercising the contract.

What are the advantages of buying call options?

Call options give the holder of the contract the right to purchase the underlying security, while put options give the holder the right to sell shares of the underlying security. Both can be used to let investors profit from movements in a stock’s price.

What is the purpose of a strike price in call and put options?

A call gives investors the option, but not the obligation, to purchase a stock at a designated price (the strike price) by a specific time frame (the expiration date). Essentially, the buyer of the call has the option to purchase the security up until the expiration date. The seller of the call is also known as the writer.