What Option Types does exist

Option types call or putBefore you begin trading options, you should know what exactly is a stock option and understand and what option types does exist.

The two basic types of option contracts – puts and calls. Learn how they work and how to trade them for profits.

There are two options types: calls and puts. You can buy them or sell it. When you buy an option contract you become the holder of the contract and when you sell an option you are the writer.

Call Options

A Call option is a contract that gives the buyer the right to buy 100 shares of an underlying equity at a predetermined price (the strike price) for a pre set period of time. The seller of a Call option is obligated to sell the underlying security if the Call buyer exercises his or her option to buy on or before the option expiration date. For example, an American-style WXYZ Corporation May 21, 2011 60 Call entitles the buyer to purchase 100 shares of WXYZ Corporation common stock at $60 per share at any time prior to the option’s expiration date of May 21, 2011.

Put Options

A Put option is a contract that gives the buyer the right to sell 100 shares of an underlying stock at a predetermined price for a pre set time period. We prefer to sell options for option premium. The seller of a Put option is obligated to buy the underlying security if the Put buyer exercises his or her option to sell on or before the option expiration date. Likewise, an American-style WXYZ Corporation May 21, 2011 60. Put entitles the buyer to sell 100 shares of WXYZ Corp. common stock at $60 per share at any time prior to the option’s expiration date in May.

When the market has a dip the options are the most expensive. We expect that the market goes up again. At that time we sell puts for option premium. We do this again and again to create a consistent income.