Puts and calls

A 'put' give you the right to sell a share at a pre-determined price, a 'call' gives you the right to buy them.

Puts and calls are both types of share options. A put gives you the right (but not the obligation) to sell something, say a share, at a set price (the strike price) on a set date in the future.

How much you pay for that right is referred to as the premium, and is deducted from your profit on the sell date. Investors typically buy a put on a share if they expect the price to fall, but do not want to take the risk of actually short-selling the shares.

Where puts give you the right to sell at a pre-determined price, a call gives you the right (but not the obligation) to buy them. So you buy a call with a certain strike price if you expect the price of the underlying share to rise above the fixed strike price, effectively getting the shares at a discount.

Recommended

Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020
Intangible assets
Glossary

Intangible assets

An intangible asset is anything that a company owns that isn’t physical.
25 Sep 2020

Most Popular

Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
Leasehold reforms promise the end of a nightmare for many homeowners
Property

Leasehold reforms promise the end of a nightmare for many homeowners

Horror stories about unscrupulous landlords profiting from a legal relic of the feudal era are about to get a happy ending, says Simon Wilson.
16 Jan 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021