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What are put option,call option?

SAHIL BANSAL (Student) (170 Points)

30 July 2012

Friends

What is meant by buy call,sell call,buy put and sell put options?

if possible explain with an example.

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10 Replies

CA Sankalp Patwa (CA) (193 Points)
Replied 30 July 2012

1.Buy Call :- A right to purchase on a later date at a specific price decided today.

Illustration :- suppose today price of a share is Rs.500/- I am expecting prices to increase to 600 level in on 30/09/2012 and on that day I dont want to purchase at such higher rate.

So I will purchase an option to purchase that share on 30/09/2012 for say Rs.550/- or any price lower than Rs. 600/-

2.Sell Call :- A duty to sell on a later date at a specific price decided today.

3.Buy Put :- A right to sell on a later date at a specific price decided today.

Illustration :- suppose today price of a share is Rs.500/- I am expecting prices to decrease to 400 level in on 30/09/2012 and on that day I dont want to sell at such lower rate.

So I will purchase an option to sell that share on 30/09/2012 for say Rs.495/-

or any price higher than 400.

4.Sell Put :- A duty to purchase on a later date at a specific price decided today.

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SAHIL BANSAL (Student) (170 Points)
Replied 31 July 2012

thank u very much.Mr. Sankalp

Archana Das (CA Final student) (622 Points)
Replied 03 August 2012

@ Sankalp i dnt understand 1 thing y do we need put option whn we can use call option for making future sale/purchase??? put option is just d reverse of call in terms of sale/purchase

CA Sankalp Patwa (CA) (193 Points)
Replied 05 August 2012

Hey archana

your answer is posted on https://www.jumboteam.net/why-do-we-needd-a-put-option/

Please refer

regards

sankalp

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Archana Das (CA Final student) (622 Points)
Replied 05 August 2012

ya bt cnt we use sell call for future sales???

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CA Sankalp Patwa (CA) (193 Points)
Replied 06 August 2012

Refer this page archana for your answer

https://www.jumboteam.net/why-do-we-needd-a-put-option/#comment-8

CA Sankalp Patwa (CA) (193 Points)
Replied 06 August 2012

Archana

Kindly refer to the previous link

I have posted your answer there.

Archana Das (CA Final student) (622 Points)
Replied 06 August 2012

Originally posted by : SANKALP PATWA
	1.Buy Call :- A right to purchase on a later date at a specific price decided today. Illustration :- suppose today price of a share is Rs.500/- I am expecting prices to increase to 600 level in on 30/09/2012 and on that day I dont want to purchase at such higher rate. So I will purchase an option to purchase that share on 30/09/2012 for say Rs.550/- or any price lower than Rs. 600/- 2.Sell Call :- A duty to sell on a later date at a specific price decided today. 3.Buy Put :- A right to sell on a later date at a specific price decided today. Illustration :- suppose today price of a share is Rs.500/- I am expecting prices to decrease to 400 level in on 30/09/2012 and on that day I dont want to sell at such lower rate. So I will purchase an option to sell that share on 30/09/2012 for say Rs.495/- or any price higher than 400. 4.Sell Put :- A duty to purchase on a later date at a specific price decided today.

I had checkd out ur link previously....(before u posted d same link agn) it didnt answer my question i posted next.The highlited text has the same meaning perhaps there is a significance of the word 'right; and "duty".

plz explain

Nirav J ( ) (45 Points)
Replied 07 August 2012

Originally posted by : Archana Das
	@ Sankalp i dnt understand 1 thing y do we need put option whn we can use call option for making future sale/purchase??? put option is just d reverse of call in terms of sale/purchase

Buying PUTS isnt the opposite of selling CALLS !

When you BUY a PUT or a CALL, you BUY a RIGHT, to Sell or Purchase the Stock/underlying at a Given Strike price respectively, BUT you dont have an OBLIGATION to do so.

When you SELL a PUT or a CALL, you are under an OBLIGATION to Purchase or SELL stocks/underlying at a given Stike price respectively.

To explain it very briefly, the thumb rule is, if you BUY a CALL or a PUT, the RISK is Limited whereas the PROFIT (theoretically) is Maximum/unlimited.

If you SELL a CALL or a PUT, The PROFIT is Limited whereas the RISK is Unlimited.

For better understanding, I would suggest you go through this link/tutorial, which is pretty informative.

https://www.investopedia.com/university/options/default.asp

Some more reading on Risks w.r.t. Options.

https://www.optiontradingpedia.com/option_trading_risks.htm

Cheers.

CA Sankalp Patwa (CA) (193 Points)
Replied 07 August 2012

Originally posted by : Archana Das
	@ Sankalp i dnt understand 1 thing y do we need put option whn we can use call option for making future sale/purchase??? put option is just d reverse of call in terms of sale/purchase

@ Archana we cannot use call option for making future sales.

and yes put option is just d reverse of call in terms of sale/purchase.

If this is not d answer to your query, then i m not getting your question rightly.

:-(

Extremely sorry.