Question

Explain the difference between a call option and a put option. Would you use options in your personal investment portfolio?

Answer 1

Answer;

Call Option and Put option is a derivative.

Call option is an options contract that give the buyer the right,but not the obligation,to buy the underlying asset at the strike price specified in the option contract at any time upto the expiration date.

For Example:A stock call option with strike price of 10 means that the call option buyer can use the option to buy that stock at $10 before the option expire.

Put Option is an option contract that gives the buyer the right,but not the obligation,to sell the underlying asset at the strike price specified in the option contract at any time upto the expiration date

For exampe:A stock put option with a strike price of 10 means that the put option buyer can use the option to sell that stock at $10 before the option expired.

However european options can only be exercised on the expiration date.

b)Yes,I use options to hedge against risk in existing investments.My options investments are designed to atleast partially compensate for any losses that may be incurred in the underlying asset.