- Option Types: Calls & Puts
- Using Covered Calls and Covered Puts to Manage Risk
- Ford Motor Company (F) Option Chain - Stock Puts &
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This is because minor fluctuations in the price of the stock can have a major impact on the price of an option. So if the value of an option increases sufficiently, it often makes sense to sell it for a quick profit.
Option Types: Calls & Puts
68 A. The correct answer is "C". The value of a long position is calculated as exercise price minus stock price. The maximum loss in a long put is limited to the price of the premium (the cost of buying the put option). Answer "A" is incorrect because it describes a gain. Answer "D" is incorrect because the value can be less than zero (. an uncovered put writer can experience huge losses).
Using Covered Calls and Covered Puts to Manage Risk
Buying "Put options" gives the buyer the right, but not the obligation, to "sell" shares of a stock at a specified price on or before a given date.
Ford Motor Company (F) Option Chain - Stock Puts &
68 In Level 6, the candidate is expected to know exactly what role short and long positions take, how price movements affect those positions and how to calculate the value of the options for both short and long positions given different market scenarios. For example:
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Buying Call options gives the buyer the right, but not the obligation, to "buy" shares of a stock at a specified price on or before a given date.
Think shopping, you get to buy it at a ($87) discount or sales price when everyone else has to pay the full retail price.
So let's say that IBM falls in price to $76. Everyone else who owns the stock has to sell it for $76, but you own a contract that says you can sell it for $685!
If you exercised the right and bought the stock at $95 you'd immediately be at a loss of $95 since the stock is trading for $55 on the open market.
When you're first learning it's always hard to wrap your head around that concept. But once we break down how Puts and Calls work it should be easier to understand the above concept.