Been trading for a while but still get confused about calls and puts sometimes.
I know calls benefit from price increases and puts from price decreases. I’m sure there’s more I should grasp.
What key differences should I understand before trading?
Learned this the hard way last month during a crazy Bitcoin session - I completely mixed up call and put psychology.
Calls need momentum building up. Puts are betting that momentum breaks down.
I jumped into a put way too early instead of waiting for the trend to actually weaken. Rushed the timing and lost my premium.
Understanding the risk is crucial. For calls, you only lose the premium if prices fall. Puts operate similarly but in reverse; you’re only losing what you paid.
Time decay affects both options. As expiration approaches, options lose value more quickly, even if the market is in your favor.
Timing is crucial with options. While both calls and puts can be profitable, many traders choose expiration dates that are too short. Ideally, give yourself a week or longer. If you run out of time, it won’t matter if you’ve predicted the direction correctly. Always risk only what you can afford to lose on each trade. If you’re wrong, you lose the entire premium, so keep your position sizes manageable.
Key differences in options:
• Calls have no upper limit on profit potential
• Puts are capped at the stock hitting zero
• Time decay reduces value daily
• Increased volatility raises option prices
Premium costs hit different on calls vs puts during high volatility periods.