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Futures & Options: Buying Calls and Puts




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This article is from the Investing Articles: Stocks and Options series.

Futures & Options: Buying Calls and Puts

Buying  Calls

Buying a call is the most basic options trading strategy that you can utilize when expecting an upwards price movement in a particular stock.  There are many different methods for choosing an underlying security, but when you buy a call, you are essentially saying that you believe that the underlying stock's value will increase before the option's expiration date.

When buying calls:

  • Options closer to expiration will cost less but also have less time to make the desired price move.
  • In-the-money options may be more expensive than out-of-the-money options, but out-of-the-money options have no intrinsic value, only time value.

 

Buying Puts

Just as call buying is the most basic options trading strategy you can employ when expecting upward movement in a stock, put buying is the most basic options trading strategy at your disposal when you expect a stock's value to drop.  By purchasing a put, you are investing in the belief that a particular security's value will fall below a certain price by the option's expiration date.

When buying puts:

  • Puts can allow you to profit from a downward move in an equity.
  • It is not necessary for you to own shares of the underlying stock to buy a put on it.   You would only have to buy the shares if you decide to exercise the option

 

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