Options on Stocks

Description
Call Option
Right to buy a stock at a predetermined price and for predetermined period. Defined by:
  • Strike price
  • Expiration date
  • Premium
Buyer of a Call Option
  • Gets the right to buy the stock at strike price at any time before expiration
  • Pays the premium
Seller of a Call Option
  • Gets the premium
  • Obligated to sell the stock at the strike price at any time before expiration date
Put Option
Right to sell a stock at a predetermined price and for predetermined period. Defined by:
  • Strike price
  • Expiration date
  • Premium
Buyer of a Put Option
  • Gets the right to sell the stock at strike price any time before expiration
  • Pays the premium
Seller of a Put Option
  • Gets the premium
  • Obligated to buy the stock at the strike price at any time before the expiration date
Seller of a Covered Call Option
The seller owns the underlying stock. Hence:
  • Takes limited risk
  • Generates extra income from the stock he owns
  • Limits upside potential if the stock goes up
Seller of a Naked Call Option
Seller does not own the underlying stock. Hence:
  • Takes unlimited risk if the stock zooms up.
  • Not advisable.
Seller of a Cash Covered Put
Seller has cash in the account to buy the underlying stock.
Seller of Naked Put Option
Seller doesnt have cash to buy the underlying stock. Seller using margin/leverage and is taking high risk.
Options Calculator
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