Below, we’ll discuss what’s the difference between a call and a put and provide you with tips on how to use this information for trading strategies.
The Key Characteristics of Call Options and Put Options
To start, let’s define what is call and put in trading.
- Call option: The holder has the right to buy the options they’re interested in.
- Put option: The holder has the right to sell the options they’re interested in.
What Makes a Call Option Different from a Put Option?
Now, let’s dive deeper into the call and put difference. This is basically based on the underlying asset’s price movement. Traders use call options when the investor expects the price of the underlying asset to rise.
However, traders use put options when the investor expects the price of the underlying asset to fall.
When to Use Call Options versus Put Options in Your Trading Approach
Now that you know what is options call and put, here’s when to use one or the other. To start, it depends on your market outlook and strategy.
So, if you expect the price of an underlying asset to rise, use a call option. That way, you can profit from that increase and limit your risk.
But, if you expect the price of an underlying asset to fall, use a put option instead.
Common Questions Answered: What Are Call and Put Options in Trading?
It’s clear from the above what is the difference between a call and put option trading. But, here’s a quick summary:
What is a call option in trading?
A call option is a contract that gives the holder the right to buy an underlying asset at a predetermined price before the expiration date of the option.
What is a put option in trading?
A put option is a contract that gives the holder the right to sell an underlying asset at a predetermined price before the expiration date of the option.
