What are puts and calls?

Puts and calls are the types of options contracts, and both types have a buyer and a seller. So while most financial markets have only two types of participants — buyers and sellers — the options market has four: call buyers, call sellers, put buyers and put sellers.

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

A call option gives the buyer the right but not the obligation to buy the underlying asset at a particular price (strike price) on or before the expiration date. What is a Put Option? A put option gives the buyer the right but not the obligation to sell the underlying asset at a particular price (strike price) on or before the expiration date.

What is a call & how does it work?

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.

Should you write a naked call or put?

Writing naked calls or puts can return the entire premium collected by the seller of the option, but only if the contract expires worthless. Covered call writing is another options selling strategy that involves selling options against an existing long position.