Call and put option in share trading


By using this site, you agree to the Terms of Use and Privacy Policy. November Learn how and when to remove this template message. If the buyer fails to exercise the options, then the writer keeps the option premium as a "gift" for playing the game. Trading options involves a constant monitoring of the option value, which is affected by changes in the base asset price, volatility and time decay.

But if the stock's market price is above the option's strike price at the end of expiration day, the option expires worthless, and the owner's loss is limited to the premium fee paid call and put option in share trading it the writer's profit. Another use is for speculation: Generally, a put option that is purchased is referred to as a long put and a put option that is sold is referred to as a short put. Articles needing additional references from October All articles needing additional references. October Learn how and when to remove this template message.

The price of the call contract must reflect the "likelihood" or chance of the call finishing in-the-money. Retrieved from " https: In the protective put strategy, the investor buys enough puts to cover his holdings of the underlying so that if a drastic downward movement of the underlying's price occurs, he has the option to sell the holdings at the strike price.

A naked putalso called an uncovered putis a put option whose writer the seller does not have a position in the underlying stock or other instrument. Please help improve this article by adding citations to reliable sources. October Learn how and when to remove this template message. The put buyer either believes that the underlying asset's price will fall by the exercise date or hopes to protect a long position in it. But if the stock's market price is above the option's strike price at the end of expiration day, the option expires worthless, and the owner's loss is limited to the premium call and put option in share trading paid for it the writer's profit.

That is, the call and put option in share trading wants the value of the put option to increase by a decline in the price of the underlying asset below the strike price. The buyer pays a fee called a premium for this right. The most obvious use of a put is as a type of insurance. The buyer will not exercise the option at an allowable date if the price of the underlying is greater than K. The writer receives a premium from the buyer.

By using this site, you agree to the Terms of Use and Privacy Policy. That allows the exerciser buyer to profit from the difference between the stock's market price and the option's strike price. The put writer believes that the underlying security's price will rise, not fall.

Moreover, the dependence of the option value to price, volatility and time is not linear — which makes the analysis even more complex. The writer receives a premium from the buyer. The put yields a positive return only if the security price call and put option in share trading below the strike when the option is exercised. If the underlying stock's market price is below the option's strike price when expiration arrives, the option owner buyer can exercise the put option, forcing the writer to buy the underlying stock at the strike price. October Learn how and when to remove this template message.