Calls And Puts

Despite the simple sounding names, Calls and Puts are a method of trading that allows an investor to sell stock at predetermined levels of price. The trade must occur within a specified time period. There is a preset expiration date to the agreement.

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.

Both methods of trading can yield a profit for the investor. The savy investor can anticipate the moves of the market and use Calls and Puts to increase their bank account. The biggest danger is not watching the expiration date of the agreement. These date are set in stone and should one be missed, or purchases not made within the limits of the agreement, an investor risks loosing their 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.

If anything the profit can be used to counterbalance the debit the investor may have accrued in the stock.
It is imperative to understand the limit each type of preference (Calls and Put) gives when you procure. This helps you to understand why there is rate fluctuation of the stock in the market wavy.

Calls and Puts is a technique of investing that can benefit either the large or small investor. There are many different methods of approaching investing that can be of great value as long as the investor understands the risk. Calls and Puts does not require large amounts of cash to begin and can be ideal for the small investor.