Options - Puts and Calls

South Florida Securities Fraud and Investment Mismanagement Attorney, Russell L. Forkey, Esq.

This post is designed to provide some general information about the types of options and strategies that an investor can utilize in the investment arena.  Please keep in mind that this information is for educational purposes only.  Thus, it should not be considered as legal or investment advice.  If you have any questions concerning the below information, please consult a qualified legal or investment professional.

The Difference Between Put and Call Options:

Put and call options are contracts that give the holders the right, for a price, called a premium, to sell or buy an underlying stock or financial instrument at a specified price, called the exercise or strike price, before a specified expiration date.

Option sellers are called writers.  Covered writers, if the writer owns the underlying security or financial instrument, naked writers if they don't.  Buyers of options are called just that.  A call option is an option to buy and a put option is an option to sell.

Listed vs. over-the-counter options:

Listed options are options traded on national stock and commodity exchanges and consequently have both visibility and liquidity, as opposed to conventional over-the-counter options, which are individually negotiated, more expensive and less liquid.

Listed options are available on stocks, stock indexes, debt instruments, foreign currencies, and futures of different types.

Options make it possible to control a large amount of value with a much smaller amount of money.  Because of that a small percentage change in the value of the underlying instrument can result in a much larger percentage change in the value of the related option.  Large gains and losses are possible with the leverage that options provide.

Whether or not the use of options is suitable for an investor is a personal decision; but is one that should not be done without a great deal of thought and investigation.  Do the risks outweigh the benefits?  Please consider that option trading is so specialized that a separate option agreement is required to trade options.

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