Explanation of Put & Call Options

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A stock option is a legal contract that represents the right to buy or sell 100 shares of a specific stock at a specific price by a specific date. There are two types of options, known as put and call. Either type gives the buyer the option, but not the obligation, to perform the transaction.

Put Options

A put option represents the right to sell the underlying stock at a specific “strike” price per share by a specific date, according to the Motley Fool financial website. The person or entity buying a put option has the right to sell the stock to the option seller at the strike price.

Call Options

A call option represents the right to buy the underlying stock at a specific strike price by a specific date, states Motley Fool. The person or entity buying a call option has the right to buy the stock from the option seller at the strike price.

Option Pricing

Options are contracts to buy or sell 100 shares of the stock, states Motley Fool. Options are transferable so you can buy or sell an option at any time. Options are quoted in price per share. You would also pay or receive the option’s per-share strike price times 100 if the option were actually exercised.

References

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Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.

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  • stocks and shares image by Andrew Brown from Fotolia.com