Q:

What is "Call and Put" in the Stock Market?

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Quick Answer

"Calls" and "puts" are types of options for trading stocks. An option gives the buyer of the option the right to buy a stock from (a call option) or to sell a stock to (a put option) the seller of the option at a specific price, called the strike price.

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Full Answer

Exercising a call option forces the seller of the option to sell the underlying stock at the strike price. For example, an investor exercising a $25 call option on a stock valued at $50 buys the stock from the option seller at the lower price and can sell the stock back on the market for a $25 profit. The value of a call option moves in the same direction as the underlying stock price.

Exercising a put option forces the seller of the option to buy the underlying stock at the strike price. An investor exercising a $50 put option on a stock valued at $25 buys the stock from the market at the lower price and sells the stock to the option seller for a $25 profit. The value of a put option moves in the opposite direction as the underlying stock price.

An option contract has no value when the strike price is below the stock price in a put option or above the stock price in a call option. All options specify an expiration date, and the buyer of the option can exercise the option at any point up to and including that time.

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