Calls and Puts
Options are contracts that give you the right—but not the obligation—to buy or sell a stock at a specific price before a certain date.
Call Options
A call option gives you the right to BUY a stock at a specific price (strike price) before expiration. You buy calls when you think a stock will go up. If it does, you can buy at the lower strike price and profit.
Put Options
A put option gives you the right to SELL a stock at a specific price before expiration. You buy puts when you think a stock will go down. If it does, you can sell at the higher strike price and profit.
Key Terms
Strike Price: The price at which you can buy (call) or sell (put) the stock. Premium: The cost of buying the option contract. Expiration: The last date you can exercise the option. Each contract typically represents 100 shares.
Call Option
- Right to BUY
- Profit when stock rises
- Bullish strategy
Put Option
- Right to SELL
- Profit when stock falls
- Bearish strategy
- Calls give you the right to buy; puts give you the right to sell
- You pay a premium to buy options contracts
- Options expire and become worthless if not exercised or sold
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