Put and Call options Research Paper Example | Topics and Well Written Essays - 500 words

Put and Call options - Research Paper Example In the call option the security deposit is allowed to take a certain commodity at a certain price if one chose to. On the other hand the put option has got an insurance policy that protects the commodities against loss in value. When it comes to motivations the buyer of the call option hopes to the price of the underlying product will go up but the seller of the call option hopes for it to go down. The buyer of the put option is advantaged if the prices went down. This is to prevent the risk that is limited to the premium. When it comes to the profits the buyer of the call option hopes that he will make a profit by buying stocks for less than their rising value. The seller of the call option hopes to make profits when the stock prices go down or if the prices go high below the price the buyer pays for creating the call option. When it comes to the put option the buyer is advantaged when the put option expires with the stock price above the strike price. Sellers In the put option make profits if the stock price falls below the strike price. Call options shows how options trading are high risk, high reward by contrasting buying call options with buying stock. Both require the investor to believe that the stock price will rise. However, call options give very high rewards compared to the amount invested if the price appreciates wildly. The downside is that the investor loses all her money if the stock price does not rise well above the strike price (Sheeba 136).