A call option provides an investor with the right to purchase an asset such as a stock, commodity or bond at a specified time during a specified time period, explains Investopedia, whereas a put option provides an investor with the right to sell a specific amount of bonds, stocks or commodities at a specified price during a specified time period. Call options do not require investors to buy the underlying assets at a specified price.
Many investors purchase calls when they believe the price of the asset may rise over specified periods of time, according to Investopedia. Investors sell calls when they believe the price of the underlying assets may fall. If the option’s stock or other underlying asset fails to meet a specified price before expiration, the option expires and is now without value.
Buyers of put options do so when they believe the share price of the underlying stock or other assets may fall, states Investopedia. Sellers of puts do so when they believe the price of the underlying assets may rise. Unlike calls, puts require the seller of the option to buy the underlying asset at a specified price, known as the strike price. To obtain the rights to call and put options, investors must pay an option premium price to the seller of the option.