What do "Call" and "Put" mean?

FAQs

• What are "Call" Options?

• What are "Put" Options?

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(E) Call and Put

In the context of trading options, “Call” and “Put” refer to two types of options contracts that give traders different rights regarding the underlying asset.

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Call Options:

• Definition: A call option gives the holder the right (but not the obligation) to buy the underlying asset (e.g., a stock or cryptocurrency) at a specified price (the strike price) before or on a certain expiration date.

• When to Use: Traders typically buy call options when they expect the price of the underlying asset to rise. If the asset's price exceeds the strike price, the holder can exercise the option to buy at the lower strike price, potentially selling it at the higher market price for a profit.

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Put Options:

• Definition: A put option gives the holder the right (but not the obligation) to sell the underlying asset at a specified price before or on a certain expiration date.

• When to Use: Traders buy put options when they anticipate that the price of the underlying asset will fall. If the asset's price drops below the strike price, the holder can exercise the option to sell at the higher strike price, thereby minimising losses or potentially profiting from the price decline.

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Summary:

- Call Options = Right to Buy (bullish outlook)

- Put Options = Right to Sell (bearish outlook)

Both types of options can be used for various strategies, including speculation, hedging, and income generation.