A call option entitles the holder to purchase an asset at a specified "strike" price prior to a certain date, explains Investopedia. A put option gives the owner the option of selling the stock at the stated price on or before its expiration, adds Investopedia.Continue Reading
For example, a person purchasing a $40 call option on General Electric that expires the third Friday in June can buy the stock at that price any time up until the expiration, explains Forbes. Therefore, should the stock climb above $40 prior to then, the investor can buy the stock at less than market value.
Likewise, an individual purchasing a $25 put option on Pfizer can sell the stock for $25 at any time before the designated expiration date, according to Forbes. Should the stock fall below the put option, the investor can sell the stock for more than its market value.Learn more about Investing