Types

Options come in two forms: call options and put options. Though different in function, it is important to know that buying options gives you the right to exercise the option, while selling options obligates you to follow through in the event the purchaser exercises the option.

Buying Put Options

In contrast to the call option, put options are what you buy when you believe a stock’s price will fall. The option fee guarantees you a set price at which to sell the stock, no matter how far it drops.

Selling Call Options

Selling call options is similar to buying put options because in both cases, you believe the underlying stock’s value will decline. As long as you own the underlying stock, the main risk is not reaping the profit associated with a climbing stock price.

Selling Put Options

References

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