An introduction to calls and puts.
Option trading can enhance your returns and can also help to protect your portfolio from risk.
At a glance
Learn the difference between calls and puts and what these contracts mean to you.
An option is a contract that gives the buyer the right, but generally not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.
The two types of options are calls and puts:
A call gives the holder the right to buy a specific amount of a certain asset at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the option expires.
A put gives the holder the right to sell a specific amount of a certain asset at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires.