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Options Ins and Outs. An option is a contract giving an investor the right, but not the obligation, to buy or sell a stock or other asset at a set strike price by a certain expiration date ...
How does a put option work and why would someone buy (or sell) one? Skip to main content. 24/7 Help. For premium support please call: 800-290-4726 more ways to reach us ...
Put option: A put option gives its buyer the right, but not the obligation, to sell a stock at the strike price prior to the expiration date. When you buy a call or put option, you pay a premium ...
The seller's potential loss on a naked put can be substantial. If the stock falls all the way to zero (bankruptcy), his loss is equal to the strike price (at which he must buy the stock to cover the option) minus the premium received. The potential upside is the premium received when selling the option: if the stock price is above the strike ...
A trader who expects a stock's price to increase can buy a call option to purchase the stock at a fixed price (strike price) at a later date, rather than purchase the stock outright. The cash outlay on the option is the premium. The trader would have no obligation to buy the stock, but only has the right to do so on or before the expiration date.
The trader may also forecast how high the stock price may go and the time frame in which the rally may occur in order to select the optimum trading strategy for buying a bullish option. The most bullish of options trading strategies, used by most options traders, is simply buying a call option. The market is always moving.
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