Call:
-Allows you to buy stock
-If you have one call that means you are able to buy that stock at your set price
-It has to reach the set price on or before your contract’s expiration
-If it doesn’t reach the set price, your contract deteriorates in value and you lose your option premium
-You buy it in hopes of stock going up
-As the stock price goes up, the call increases in value
-Similar to going long within stocks
Put:
-Allows you to sell stock (it gives you the right, but not the obligation)
-For example: you own 100 shares of Microsoft at $25 and you own a put of Microsoft at $20
-If the stock declines to $10/share and you have the put for that year, you can put somebody the stock at the $20 range
-You buy it in hopes of stock going down
-As the stock price goes down, the put increases in value
-You are hoping to sell the contract later at higher value
-Similar to short-selling
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