I’ve been trading for some time but still feel confused about these two options strategies.
I understand that calls are for bullish moves and puts are for bearish ones. But what really differentiates them when buying to open?
I’ve looked it up but would appreciate insights from those who trade these often.
Understanding the direction is key here. Buying a call means anticipating the stock will exceed your strike price plus the premium paid.
On the other hand, buying a put involves predicting the price will fall below the strike minus the premium. Remember, both options carry the risk of losing your entire premium if the anticipated movement does not occur before expiration.
I bought calls thinking gains would come quick. Instead, time decay ate into my profits, and I ended up with just 5% when I expected 50%.
During a market crash, I bought puts as the stock tanked. However, I lost money because volatility dropped faster than the price fell.
I learned timing and volatility matter way more than I ever thought.
Calls let you buy shares at the strike price, puts let you sell at the strike price. That’s it.
Buy a call and you make money when the stock goes above your strike. Buy a put and you make money when it drops below.
Call buyers want the stock to go up, put buyers want it to go down. You’re paying premium for the right to act at a specific price.
Get intrinsic value down first. Options get messy quick if you don’t have the basics locked in.
Main difference: where you make money.
• Calls make money when price goes above strike + what you paid
• Puts make money when price drops below strike - what you paid
Both get hurt by time decay and volatility swings.
Calls make money when the stock goes above breakeven, puts make money when it drops below.