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

Question

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

Answer 1

Think of it this way. To put means to put away or sell. Call means to call to you or buy.

So if you buy a put you have the right to sell. If you buy a call you have the right to buy. If you write (sell to open) a put you are giving the right to someone to sell the shares to you. If you write a cll you are giving someone the right to buy the shares from you.

See http://shareworld.co.uk/index.php?page=o...

or http://www.shareworld.co.uk/index.php?pa...

Answer 2

Call Option :

An agreement that gives the investor the right to buy(not obligation) the stock at a specified price(strike price) within a specified date(expiry date).

Ex: If you a buy Microsoft call option for august 15 at a strike price of 40 dollars by paying a premium amt, this means that till 15 th of aug, you have a right to buy the stock at 40 dollars irrespective of how much the price of the stock is but it is not an obligation that is you may buy or may not buy, obviously the investor will be interested to exercise this option only if the price will go above strike price + premium price.

b) Put Option :

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date.

Answer 3

Put is betting the stock will go down

Call is betting the stock will go up

Knowing that allows you to use them for an investment alone, or as a complement to a stock strategy on the same side of the trade, or as a hedge to protect against loss on the oppositve side of a stock trade, in the event your stock suppositions go the wrong way