Calls and Puts
A Call represents the right of the holder to buy stock. A Put represents the right of the holder to sell stock. A Call option is a contract that gives the buyer the right to buy 100 shares of an underlying equity at a predetermined price (the strike price) for a preset period of time.
Once you’re in the markets for a while you start to hear new trading terms … Don’t know what puts and calls are? Those are two types of options trading.2020 is quite the volatile year so far…We’ve got the coronavirus scare, the big market sell-off, and all kinds of global tension.Some traders think one way to trade volatile markets is with options.Not gonna lie — options are complex. A lot of options traders try to profit without actually owning the underlying stock. Yep, they still go through a broker.Sound risky? It can be. But options traders argue that the rewards make this strategy worth the high risk.Full disclosure: I don’t trade options.But I think it’s important that you understand how different players move in the markets. Options trading is a growing trend. Don’t overlook these traders.And who knows? Maybe you’ll want to try options down the road. I don’t recommend it for beginners. Learn the basics first. Find your consistency. Then try branching out into options if that’s your calling.Today, we’ll review puts and calls. So let’s start with the most basic question…What Are Puts and Calls?Calls are a contract to sell a stock at a certain price for a certain period of time. Here, you gotta accurately predict a stock’s movement. That’s the hard part — predicting the market’s direction is near impossible.You buy a call when you expect the price to go up. When you buy a call contract, you can buy a stock at a guaranteed price up until a certain date.We’ll get to some examples in a bit.Puts are a contract to buy a stock at a certain price. And like calls, it’s hard to get them right consistently. If you nail it, it can be rewarding.Traders buy puts when they expect a stock’s price to go down.Calls and puts allow traders to bet on an underlying stock’s direction — without actually buying or selling the stock.Now that you have a basic definition of options trading, you’re probably wondering…
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