# Stock call and put options definition

Generally, a put option that is purchased is referred to as a long put and a put option that is sold is referred to as a short put. The call contract price generally will be higher when the contract has more time to expire except in cases when a significant dividend is present and when the stock call and put options definition financial instrument shows more volatility. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. The seller's potential loss on a naked put can be substantial. For call options in general, see Option law.

The buyer pays a fee called a premium for this right. The seller's potential loss on a naked put can be substantial. November Learn how and when to remove this template message. He pays a premium which he will never get back, unless it is sold before it expires. In the protective put strategy, the investor buys enough puts to cover his holdings of the underlying so that if a drastic downward movement of the underlying's price occurs, he has the option to sell the stock call and put options definition at the strike price.

A put option is said to have intrinsic value when the underlying instrument has a spot price S below the option's strike price K. Articles needing additional references from October All articles needing additional references. The purchase of a put option is interpreted as stock call and put options definition negative sentiment about the future value of the underlying. Retrieved from " https: A European option can only be exercised at time T rather than any time until Tand a Bermudan option can be exercised only on specific dates listed in the terms of the contract.

But if the stock's market price is above the option's strike price at the end of expiration day, the stock call and put options definition expires worthless, and the owner's loss is limited to the premium fee paid for it the writer's profit. If the buyer fails to exercise the options, then the writer keeps the option premium as a "gift" for playing the game. A Practical Guide for Managers. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative.

The put yields a positive return only if the security price falls below the strike when the option is exercised. November Learn how and when to remove this template message. Option values vary with the value of the underlying instrument over time. He pays a premium which he will never get back, unless it is sold before it expires.

Adjustment to Call Option: Retrieved from " https: In order to protect the put buyer from default, the put writer is required to post margin. Retrieved from " https: