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Explain Put & Call

sunil. m (student) (49 Points)

03 March 2008

Can any one explain what is put & call

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3 Replies

Sharad (Articled Assistant) (32 Points)
Replied 03 March 2008

Put & Call are right to a option buyer & seller & not an obligation. In put option ,buyer has right to sale option at pre determind price & in call option buyer has right to purchase call option at pre determined price.

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pRaSoOn (Articled assistant) (500 Points)
Replied 03 March 2008

That's very wide topic.....you should refer to book for that...basically these are two modes of dealing in stock market,....i think what sharad has mentioned is true but not complete....it's not possible in 3-4 sentence...

Ruchika Gupta (Chartered Accountant) (247 Points)
Replied 04 March 2008

To be very concise,
a put is an option to sell an underlying asset (which can be anything like shares or a commodity like gold) at a predetermined price by the buyer of the option to the seller/writer of the option.
a call is an option to purchase the underlying asset (which can be anything like shares or a commodity like gold) at a predetermined price by the buyer of the option from the seller/writer of the option.
Please always keep in mind that the buyer of the option (whether call or put) has always the RIGHT to purchase or sell the underlying asset from/to the seller of the option, as the case may be. This means he may or may not exercise his option ( It depends upon the contract price and current Market price of concerned asset) but a seller/writer of option is always under an OBLIGATION. If buyer choses to exercise call/put, as the case may be, then the seller have no choice but he has to sell/buy the underlying asset at contract price. It is for this right that buyer pays OPTION PREMIUM to the seller of the option at the time of entering into contract.