There are many investment options for individual investors that they often realize. It is namely Stock option. The option contracts divided into two segment s namely Calls and Puts. A ‘Call’ represents the right of the holder to buy stock, whereas ‘Put’ represents the right of the holder to sell stock.
Calls enhance in value when the underlying security is rising up, and they reduce in value when the underlying security falls in price. Puts increase in value when the underlying security is going down and decrease in value when it is going up. So depending on what you expect taking place in the market, you can buy either a call or a put and earn profit from that movement. A call offers gives you the right to buy a stock from the investor who sold you the call option at a particular price on or before a specified date.
A put option is a contract offering you the right to sell a stock to the investor who is selling you the put option at a determined price, on or before a specified date. For e.g, if you bought a 25 October put option on ABC, the option would come up to with terms saying you that you could sell the stock for the strike price $25 any time before the third Friday in October, i.e the expiration date.
It implies that if ABC falls anywhere below $25 prior to the third Friday in October, you can sell the stock above its market value. And if you do not like to sell the stock, you can sell your option to any other person for a profit.
The Expiration Process
An option can be bought or sold with multiple expiration dates at any specified time. The risky part about options is that they expire or cease. If you do not sell or trigger your option prior to the expiration date, you will lose your entire investment. Hence, special cared to the given to take care to always watch your expiration dates.
Exercising the Option
Options investors do not required buying or selling the underlying shares that are connected with their options. They can be opted for reselling their options or ‘trade out of their options positions’. If they do opt to purchase or sell the underlying shares represented by their options, this is called exercising the option.