Q:

What is the difference between a put and a call in trading?

A:

Quick Answer

A put gives investors the right to sell a security, usually a stock, at a certain price by a certain date, while a call gives investors the right to buy a security at a certain price by a certain date, explains S. Wade Hansen for Forbes. They are the two categories of options used in options trading.

Continue Reading
What is the difference between a put and a call in trading?
Credit: getty Images North America Getty Images News Getty Images

Full Answer

Options trading gives investors the ability to make money whether the market goes up, down or stays the same, according to Rocco Pendola for The Nest. When investors believe the value of a security will rise, they make money by buying a call option or selling a put option on that security. If they believe the value will decrease, they profit by doing the reverse, purchasing a put option or selling a call option on it. Through selling options, investors also make money when the market is stagnant. If the value of the security remains the same, these options are never utilized, and the seller keeps the option premium.

All option contracts have a strike price, the set price an option can be used, and an expiration date, states Pendola. Investors have the right to exercise an option but have no obligation to do so. If they choose to let it expire, or the security does not reach the strike price by the expiration date, the option becomes worthless, and investors lose the initial cost of the options contract.

Learn more about Investing

Related Questions

Explore