What is Call Option and Put Option?
Short Answer
Options are a form of conditional derivatives policy that allows the holder to buy or sell the key asset at a fixed price before or after the agreement expires. The two most impactful options are Call Options and Put Options.
Detailed Answer
What is Call Option?
The 'Call Option' gives the option holder the right to buy a particular asset at book value on or before the maturity date in return for a premium charged in advance to the seller.
Call Options - Features
- It is a derivative.
- A buyer will earn profits when the asset primary to it will increase its price.
- They can also be used for combination strategies or spread strategies.
- Strike price and expiration date plays a major role in call option as any individual can buy up to 100 shares of any firm at a price which is called as Strike Price and the date till he/she can do this is called as expiration date.
- When we buy a ‘Call option,' we want and anticipate the price to rise as this will assist us in purchasing the product or asset at a lower (pre-determined) price than the current value, making it more valuable.
- The premium is paid to the call writer/seller.
- One of the important objectives for being a call buyer is to protect against a short position on the same underlying.
- In case the price of the primary asset does not escalate before the expiration date, above the strike price then the call then ends meaningless because buying the underlying explicitly again from market is inexpensive.
- You can sell the call option in two ways: covered call option and naked call option.
- A call option is usually an economy bullish bet, meaning it reduces when the value of the commodity security gains.
What is Put Option?
The ‘Put Option' gives the investor the right to sell a certain product at market value at any time before or on the maturity date in return for a premium paid up ahead.
Put Options - Features
- In this case, the loss you bear is the price you pay as premium to purchase the put option.
- The maximum loss= strike price- premium.
- They have the expectation that the price of the primary asset will fall within that particular time frame.
- Stocks, indices, commodities, and currencies all have placed options accessible.
- If the stock price rises over the contract's term, the investor only stands to lose the premium amount; the real asset valuation is not at risk.
- When an investor purchases a put, he or she might be doing so in order to acquire the underlying security at a lower price.
- Because of the effect of time decay, the cost of a put option declines as the duration to maturity advances.
- An individual can generate income by writing put option.
- A put option is usually an economy bearish bet, meaning it gains when the value of the commodity security falls.
- If the buyer wishes to accept the offer, the investor who sold the put is obliged to obtain the underlying stock.
- If the stock is sold to the seller, the premium paid is deducted from the shareholder's purchase cost.
What is Uncovered or Naked Options Trading? Naked or Uncovered Option trading is a type of trading/speculating where a Call or Put option is bought or sold by different individuals at the same time expecting different price direction movements. Naked Option trading is a Zero-Sum game which means that the Profit for one is a Loss for the other individual.
What is an Iron Condor trade in options? An Iron Condor is a 4 legged hedged option strategy that includes selling 1 slightly OTM (Out of The Money) Call as well as 1 Put option and, buying 1 Slightly Far OTM Put & 1 Call options in order to cover the risk of the Naked short positions. This strategy is implemented when the overall outlook of the underlying asset is neutral or rangebound and no major moves in any direction are anticipated. The maximum profit and loss are capped in this strategy, and by hedging, margin benefits can be enjoyed.
What is the Best strategy for Options Trading? There are many complex Option Trading strategies out there but the most profitable are some of the simpler ones. The top 3 of them are
Long & Short Straddles, Long & Short Strangles and Bull/Bear spreads.
Is Sensibull free option trading platform? Sensibull is not a complete free website for option trading but it does offer some free features and also a 7 day free trail. For more details read through the expanded version.
Is Sensibull Pro Worth it? How good is the Options Trading Platform? Sensibull Pro is a package offered by the company in terms of options trading. Features such as a statistical tool, strategy implementation advice, custom strategy build, IV charts, currency options, and more make it unique and different from the other plans. If you're serious about trading in options and are looking for a concrete structure in trading in options, then the pro package of Sensibull makes complete sense.
What are Paired Options Contracts? A paired options contract is an options trading strategy where 2 option contract of the same underlying asset is executed at the same time. It involves a combination of buying a Call option and selling a Put Option or vice versa. Some strategies of a paired options contract are Straddle, Strangle Spread, etc.
What is Sensibull Option Chain? Sensibull is an online Options trading platform that provides various Analysis tools that can be used to have a better understanding of the Options as well as to create and deploy various Option Trading Strategies that can be used by Investors & traders to Speculate as well as Hedge their existing portfolio. The Option Chain is an important feature of Sensibull. It is discussed in detail below.
What are disadvantages of Opening Demat and Trading account with Upstox? With every stockbroker, there are some advantages and disadvantages. The cons of Upstox are plenty but covers up through its advantages. However, its disadvantages are that the trade and call feature is charged 20 rupees, IPO & FPO investment opportunities are not available, under the delivery segment, GTC & GTD orders aren’t supported, etc.
What is a Collar option Strategy? When to use it? A collar option strategy is a multi-leg option strategy that involves an existing long position in any security in the Equity or Futures market and buying an OTM (Out Of the Money) Put option and selling an OTM Call option in order to hedge the existing long position from any short term bearishness. The overall Profit and loss are capped in this strategy and this strategy is implemented when the overall outlook of the underlying asset is bearish.
What is an Option Spread? Meaning, Types & Examples Option Spreads are usually used to hedge a position and try to increase the chances to make money. By doing this we limit our profits but most importantly we minimize our losses that is the most important part in trading, which is to preserve our capital.