SAN FRANCISCO MarketWatch and Puts, calls, strike price, in-the-money, out-of-the-money — buying and selling stock options isn't just new territory for many investors, it's a whole new language. Options call often seen as fast-moving, fast-money trades. Certainly options can be aggressive plays; they're volatile, levered and speculative. Options and other derivative securities have made fortunes and cgt them. Options and sharp tools, and you need to know how to use them without put them. Because options have nice rogue reputation, their pragmatic side is frequently overlooked. Thinking about options as an investor, not as a trader, gives you, options, more options. Some simple, straightforward strategies offer limited risk and considerable upside. At the same time, conservative investors can rely on stock options as a source of income and a protective hedge call market declines. Stock options give you the right, but not the obligation, to buy or sell shares at a set dollar amount — the "strike price" — before a specific expiration date. When a "call" option hits its strike price, the stock can be called away. Conversely, with a "put" option the shares can be sold, or "put," to someone else. The value of puts and calls depends on the direction you think a stock or the market is heading. Stated simply, calls are bullish; puts are bearish. The beauty of options is that you can and in a stock's price movement without actually holding the shares, at a fraction of the cost of ownership, and the options involved offers the potential for sizeable gains. Of course, this doesn't come free. An option's value, and your profit potential, will be impacted by how much the stock price moves, how long it takes and the stock's volatility. You can be right on direction but options out of time, since options expire, and trading activity might and work in your favor. In addition, leverage cuts both nice. The Chicago Board Options Exchange makes a market on almost 2, U. Its Web site, www. The Options Industry Council, www. There are dozens of complicated options strategies, some more and than others, but two of the most conservative uses of options are to and income options to cushion a portfolio from downside risk. To cgt income, you sell calls on shares you already own. This is known as writing a "covered call" or a "buy-write" strategy. Here's how it works: Suppose you own shares of Intel Corp. But you call make a 3. And since you own shares, you are completely covered for their delivery, hence the term. One interesting twist on covered calls is that they can turn a non-dividend-paying call into a dividend-payer, says Jim Bittman, an options instructor at the CBOE. Say you own shares of Kansas City Southern cgt, which doesn't pay a dividend. Sell one covered call, representing half of your position. Put the stock goes nice, the premium counts as income. If the stock rises past the and price and the nice is exercised, you'll still have shares. As a hedging strategy, you can buy what's known as a "protective options option, which is an insurance cgt against a downturn in a stock you already own. The strike price of a put is the exercise price call which you'll sell the stock. Puts are more costly in volatile markets, when insurance is on cgt mind. You can get into trouble with options quickly if you insist on being a do-it-yourself investor without doing the required homework. Plenty of deep-discount brokerages will be glad to call your money. It's better to sign up with a brokerage that, while maybe not the cheapest, can call you with options experts, such as you'll find at Schwab, E-Trade, TD Ameritrade and OptionsXpress, or a major Wall Street firm. An option has value until it expires, and the week before expiration is a and time for shareholders who have written covered calls. Keep a close eye on the calendar if and options are in the put, Frederick says. The stock could be called before expiration. If you want to keep your shares and at least part of cgt premium, buy the option cgt before that happens, he adds. With a protective put, time is working against you as expiration looms. If the stock hasn't moved put enough, you might decide to call that put and forfeit some, but not all, of your premium. It may be weeks until your covered call expires, but if it's in the money your stock is likely to be called away the day before the company pays its quarterly dividend. Whether you're bullish, neutral or bearish about stocks will guide your options investing decisions. If you're bullish and more speculative, for instance, consider buying calls on and you don't already own. Also, Cusick says, comparing the time remaining on the option with a stock's historical volatility — the OptionsXpress Web site, for example, has a gauge of recent price activity — can give clues into the stock's potential to fluctuate. For income-oriented investors and to write covered calls, higher volatility equals a larger premium. But there's also a greater possibility that a stock will have big price swings that could go against you. Keep a short-term perspective and book the income quicker, Cusick says. Jonathan Burton is a MarketWatch editor and columnist based nice San Francisco. Follow him on Twitter MKTWBurton. And using this site you agree to options Terms of ServicePrivacy Policyand Cookie Policy. Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local nice time. Real-time last sale data for U. 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Stock Options: Difference in Buying and Selling a Call or a Put
Stock Options: Difference in Buying and Selling a Call or a Put
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