Many people are skeptical about the work ao put and calls system in the stock market .Still there would be amny people who are trading fromm ages and still not clear about the concept of put and call option.
Prices and Dates
Prices and Dates
The price at which an option can be exercised is called the “strike price.” For call options, if the underlying stock price is above the strike price, the option is said to be “in-the-money” or ITM. If the stock price is below the strike price, the option is “out-of-the-money” or OTM. “At-the-money,” ATM, occurs when the stock price equals the strike price of the option. Put options are ITM when the stock price is below the option strike price and OTM when above the strike price. The expiration date for options is the Saturday following the third Friday of the month. Regular options have expirations from one to nine months.
Using Options
Using Options
An investor or trader can use options to make a short-term profit on the price movement of the underlying stocks. If he thinks the stock price will go up, he can buy or go along a call option on the stock. If he thinks the stock price will fall, buying or being long a put option will profit if the stock falls below the strike price. Options provide leverage on the underlying stock price, increasing the profit percentage if the stock moves in the correct direction.
Expiration
Expiration
At expiration, the holder of an ITM call option must purchase 100 shares of the underlying stock at the strike price. If she does not want to own the stock, the option should be sold before expiration. The holder of an ITM put option must have 100 shares of the stock to sell. Option holders can elect to exercise the option at anytime prior to expiration.
