Differences between Call Option and Put Option

Basis
Call Options
Put Options


Definitions



A call option is a contract which grants the right to the option holders (Stock buyer) but not obligation to buy specified numbers of common stock at stated price in specified date.
A put option is a contract which grants the right to the option holders (Stock Seller) but not obligation to sell specified numbers of common stock at stated price in specified date.

Right

In call option, the stock buyer (Call Option holder) has right to buy.
In put option, the stock seller (Put option holder) has right to sell.



Obligation



In call option, the option writer (Stock Seller) has obligation to sell if option holder (stock buyer) wants to buy.


In put option, the option writer (Stock buyer) has obligation to buy if option holder (stock seller) wants to sell.




Profit



In call option, there is no upper limit of option holder’s profit if the stock prices increases continuously.


In put option, the profit is limited for the option holder. The stock seller (option holder) earns profit until the stock price equal to zero.






Figure





               



1 Comments


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