Examples of puts and call options


If you don't have the financial resources to cover the obligation of buying the stock from the buyer of the put, you sold "naked puts". If your broker lets you, you may sell "uncovered "or "naked" calls in a margin account. Can already own them or buy them at market price, which is less than strike price.

And you don't have to own the stock to profit from the price rise of the stock. With a short sale, you have an unlimited downside liability if the stock goes up. Sell shares at strike price, which is more than market price sell stock for more than it's worth. Options are very sensitive to changes in the price of the underlying stocks.

Selling a Call For every buyer of a call there must be a seller, who assumes that the stock price will remain flat or go down. The seller of a put collects the purchase price of the option from the buyer of the put. Put buying is different from selling short. Because the price of options can change very quickly and dramatically, you must continually watch their price movement. Alternative Actions for the Put Seller.

If you're wrong, you can lose part or all of your investment very quickly. Alternative Actions for the Put Seller. He had to mortgage his house. You can sell covered calls to generate a stream of income.

What the put seller must do. When you sell a put, you want the price of examples of puts and call options stock to go up so you don't get the stock put to you - buy the stock for more than it's worth. Because the price of options can change very quickly and dramatically, you must continually watch their price movement. On October 27,the market plummeted seven per cent, and Niederhoffer had to produce huge amounts of cash to back up all the options he'd sold at pre-crash strike prices.

As with a call option, you don't have to own the stock. Because the price of options can change very quickly and dramatically, you must continually watch their price movement. With a put option your only liability is the price you paid for the put.

In most cases you must own shares of the stock for each contract you sell - this is called a covered call. Use calls and puts judiciously. The put seller must come up with money to buy the stock. Niederhoffer was forced to shut down his firm.

If not, you'll probably loose most or all the money you paid for the option. It tells about a trader who sold naked puts and experienced financial ruin. If you're wrong, you can lose part or all of your investment very quickly.

Also, the proceeds from selling short are in a margin account so you have to pay interest and meet margin requirements. And if you're wrong about the price movement, be prepared to lose all or a significant portion of the money you paid for the options. In a day, one of the most successful hedge funds in America was wiped out.