Puts and calls in stock options
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The document provides an overview of options trading, detailing the roles of long owners and short sellers, along with the concepts of call and put options. It explains profit and loss scenarios based on stock prices at expiration in relation to the exercise (strike) price. Additionally, it outlines bullish and bearish market conditions and their implications for trading strategies.
Puts and calls in stock options
- 1. Long Owner Holder Buyer V V S S E PUT (right to sell) CALL (right to buy)Long Owner Holder Buyer Short Ower Writer Seller Out-of-the money In the money When S=E, at-the-money (Point of view) Get from holder for $E Sell $S in market Good (S>E) Profit=(S-E)-Premium $0 paid Good (S<E) Profit=Premium $0 received Bad (S<E) Loss=Premium Short Ower Writer Seller Long Owner Holder Buyer Short Ower Writer Seller Long Owner Holder Buyer Short Ower Writer Seller E E = exercise (strike) price in contract S = Stock price at expiration date V = option value at expiration date Premium = price of option contract Buy $S in market Give to holder for $E Bad (S>E) Loss=(S-E)-Premium BullishBullishBearishBearish Buy $S in market Give to holder for $E Good (S<E) Profit=(E-S)-Premium Get from holder for $E Sell $S in market Bad (S<E) Loss=(E-S)-Premium $0 paid Good (S>E) Profit=Premium $0 received Bad (S>E) Loss=Premium (Point of view) Forecast Strategy> (When S<E) Bear market (When E<S) Bull market (When S<E) Bear market (When E<S) Bull market BullishBearishBearishBullish<Forecast Strategy