Options Calls vs. Puts: What’s the Difference?

Options are nothing more than a contract with a specified premium, strike price and expiration date. Unlike buying and selling stocks or funds of stocks, options provide almost an endless number of strategies.

Nevertheless, all options trading has two sides — calls and puts. Both are “sold” by an options trader. You sell a call if you expect the price of a stock to go up and you sell a put if you expect it to go down.

Both of these actions pay you premiums — cash income — based on the current market price of that particular options contract for a specific stock.

Both calls and puts represent 100 shares of a stock. Regardless of which way you are trading, one option always equals 100 shares.

As simple as all that sounds, there is more to it.

So what’s the difference?

A call option gives the buyer the right, but not the obligation, to buy the stock at a specific price (strike price) within a specific time frame (expiration).

A put option, on the other hand, gives the buyer the right, but not the obligation, to sell a stock at a specific price (strike price) within a specific time frame (expiration).

No matter what happens, the seller collects the premium. Once the contract expires, assuming it expires worthless, the seller can offer it again and continue to make cash income.

Options are a great way to make money and generate a steady flow of cash regardless of which way the market is driving stocks. Traders of all experience levels take advantage of this amazing process to help increase their cash income.

Another great thing about options is you don’t necessarily have to own any stocks to make money. If you weren’t quite ready to own a specific stock because it wasn’t at the price you want, you sell puts out-of-the-money (OTM).

However, you should have the cash to cover the purchase in case it does get exercised; otherwise, you will be operating on margin, i.e., borrowed money.

The further out-of-the-money (OTM) you go, the less likely the chance of getting the stock put to you. However, if by chance you did get the stock, you have another options trade ahead of you — you can turn around and sell covered calls.

Don’t sweat it if you get a stock put to you, because the chances are you would want that stock at your selected strike price anyway. Once you own it, selling covered calls allow you to generate extra cash.

Bull market or a bear market, anyone can generate cash by trading options.

Now, how aggressive you are with options trading is completely up to the individual and their overall goals for their portfolio, so don’t jump in headfirst without first knowing the risks and understanding how options really work.

Recommended Articles

3 Ways to Save Money and Make Sure You Get the Absolutely Best Deal

Marketing is meant to get the word out about the "latest and greatest" products, but new doesn't always mean better. From electronics, to clothes and dining room sets, always remember,

Options: Why Buy Puts? To Make Money When You Think a Stock Will Fall in Price

Beginning options investors often struggle with the concept of put options. They have no trouble with call options. With calls, beginners usually grasp that you will buy a predetermined number

Bitcoin Zooming Higher Again. Speculation or the Future of Money?

As Bitcoin threatens to break through its record highs set a few years ago, at least some people are likely to get involved in speculating in them again. Many seem

5 Proven Ways to Earn Powerful Side Income

If you want to earn extra money with relative ease, whether it is to save up for retirement or prepare for a well-deserved vacation, one of the best things you


Day Trading Now: Stock Too Expensive? Buy a Slice

The cost to build a diversified stock portfolio is often the highest barrier for new investors. The outlay required to buy a basket stocks is more than the dollars available.

Looking for Better Returns? 5 Ways to Invest in Brazil

Brazil is known for tourist attractions, its natural beauty and soccer. The former Portuguese colony is also a thriving multicultural country — a melting pot not unlike the United States.

Add Some Spice to Your Portfolio with This Consumer Staple Stock

When the vaccine results from Pfizer (PFE) were announced on November 9, it sent the stock market on a wild ride. Sectors that had been underperforming the overall market screamed

Iaccino: Market Volatility Here to Stay

Bob Iaccino, editor of the Stock Think Tank, talks about Amazon's move into prescription drugs and market volatility on Bloomberg News.

Beat the system by understanding both sides of the trade, reward and risk. Get Bob Iaccino's Stock Think Tank newsletter through this special offer.

Are Cannabis Stocks a Good Investment for 2021?

Cannabis and CBD oils are booming industries.  Economies see a massive boost of billions of dollars when these two hit the scene. From recreational to medicinal, these plants offer a

The Benefits and Pitfalls of Trading Options on ETFs

An exchange-traded fund (ETF) is a collection of assets that track specific investment categories. For instance, SPY tracks the S&P 500. ETFs can also track sectors and industries, such as

Options Strategy: Sell Covered Calls on Technology Stocks

Stock prices of publicly traded technology companies have been resilient this year. Many remained unaffected or benefited from the onset of the current crisis. Other sectors seem more exposed to

Looking for Foreign Stocks with Powerful Dividends? Look No More! (VYMI)

Declining yields on investment income products has let investors to hunt for high dividend yielding stocks to boost their income. One product that I have actively used and would like