Calls And Puts: Opposites Of The Same Coin
In the legal operation of trading, Calls and Puts are one of the methods utilized by investors. Puts allow the investor to sell stock within a predetermined period of time at a predetermined price. The investor who desires to do so can use Calls to acquire stock in a like manner.
At the time of the agreement, price levels are determined to activiate the option to purchase. The agreement time frame is usually put in terms of months, rather than weeks or years. At the end of the time frame, the agreement expires. There is a definite limit for the time allowed to trade. Calls and Puts trade in opposite directions.
In describing Calls and Puts, we will assume that an investor purchases Puts with the instruction to purchase stock if the value falls to a specified value. Calls, on the other hand, agree to purchase stock if the value of the stock rises to a certain value. These values are specified in the initial agreement. The value of Calls will go up when the value of the stock rises. Puts will gain in value when the value of the stock falls.
Depending on investoras market projection, one can purchase a Call or Put and benefit from the trade. The major draw back of Calls and Puts investment is that they expire. If not traded before their date of expiry there is a risk of loosing your investment.
The use of Calls and Puts are not limited to the large investor. The small investor who pays attention to the market and watches the expiration dates of their agreements can increase their profit. The investor is unlikely to make a profit if a Put is purchased on a stock already owned.
If a Put is purchased on a stock not owned by the investor, and later during the trade period the individual purchases some of the stock, the Put can be traded. If the stock happens to fall to a lower price than that specified in the Put, it is fine to purchase more of that stock outside of the agreement. A higher profit is possible in this kind of situation.
Since the initial stock was purchased at a higher price, with the purchase of the stock on the open market at lower value, the profit can offset any debt incurred with the initial purchase via the Put. It is very important for the investor to understand the limits of each kind of trade. In addition to making investing safer, it will also help explain the fluxuations in the market.
Calls and Puts investing has much to offer the small investor. There are infinite numbers of trades that can occur; it is not necessary to have a large bank account in order to invest in Calls and Puts. As long as the investor is aware of the limits of the technique, Calls and Puts can be a good profit maker.
At the time of the agreement, price levels are determined to activiate the option to purchase. The agreement time frame is usually put in terms of months, rather than weeks or years. At the end of the time frame, the agreement expires. There is a definite limit for the time allowed to trade. Calls and Puts trade in opposite directions.
In describing Calls and Puts, we will assume that an investor purchases Puts with the instruction to purchase stock if the value falls to a specified value. Calls, on the other hand, agree to purchase stock if the value of the stock rises to a certain value. These values are specified in the initial agreement. The value of Calls will go up when the value of the stock rises. Puts will gain in value when the value of the stock falls.
Depending on investoras market projection, one can purchase a Call or Put and benefit from the trade. The major draw back of Calls and Puts investment is that they expire. If not traded before their date of expiry there is a risk of loosing your investment.
The use of Calls and Puts are not limited to the large investor. The small investor who pays attention to the market and watches the expiration dates of their agreements can increase their profit. The investor is unlikely to make a profit if a Put is purchased on a stock already owned.
If a Put is purchased on a stock not owned by the investor, and later during the trade period the individual purchases some of the stock, the Put can be traded. If the stock happens to fall to a lower price than that specified in the Put, it is fine to purchase more of that stock outside of the agreement. A higher profit is possible in this kind of situation.
Since the initial stock was purchased at a higher price, with the purchase of the stock on the open market at lower value, the profit can offset any debt incurred with the initial purchase via the Put. It is very important for the investor to understand the limits of each kind of trade. In addition to making investing safer, it will also help explain the fluxuations in the market.
Calls and Puts investing has much to offer the small investor. There are infinite numbers of trades that can occur; it is not necessary to have a large bank account in order to invest in Calls and Puts. As long as the investor is aware of the limits of the technique, Calls and Puts can be a good profit maker.
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