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re: SLV
Posted on 12/11/13 at 1:35 pm to Lsut81
Posted on 12/11/13 at 1:35 pm to Lsut81
quote:I'll butt in here but my explanation below is far from complete.
Since you've done your research, can you explain what you have found, in laymans terms?
A call option gives the buyer of the option the opportunity to buy a block of stocks (in lots of 100 shares) at a set (strike) price. The person who buys the call option pays a price to the seller (writer) of the call option and this price is called the "premium."
Obviously the buyer of the call option hopes and/or expects the price of the underlying stock to go up. If it does, and the stock's price exceeds the "strike" price, he can exercise his option and buy the stock at the lower strike price and immediately sell the shares at a profit (minus what he paid for the option).
Or, he can simply sell the option itself which has also increased in price because the underlying security has increased in price.
A put option is the reverse; it gives the buyer of the option the opportunity to SELL the underlying security at a set price. The buyer of a put hopes and/or expects the stock's price to fall and he can make a profit if the price of the stock falls below the strike price of the option (minus what he paid for the option). Like a call option, a put option also has a market value and if the price of the underlying security falls, the market price of the put option goes up. So the buyer of the put can simply sell his option and make a profit, again minus what he paid for the option.
Put options are also used to protect the downside risk of a security owner just in case his stock declines in price. He can guarantee himself a price at which he can sell his stock.
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