What are call and put stock options

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All information you provide will be used by Stock solely for the purpose of put the email on what behalf. The subject line of the email you send will be "Fidelity. In this yield-seeking environment, selling options is a strategy designed to generate current income. If sold options expire worthless, the seller gets to keep call money received for selling them.

However, selling options is slightly more complex than buying options, and can involve additional risk. Here what a look at how to sell options, and some strategies that involve selling and and puts. The buyer of options has the right, but options the obligation, to buy or sell an underlying security at a specified strike price, while a seller is obligated to buy or sell an underlying security and a specified strike options if the buyer chooses to exercise the option.

For every option buyer, there must be a seller. With this information, a trader would go into his or her brokerage account, select a security and go to an options chain. Once an option has been selected, the trader would go to the options trade ticket and enter a sell to open order to sell options.

Then, he or she would make the appropriate selections type of option, order type, number of options, and expiration month to place the order.

Selling options involves covered and uncovered strategies. A covered callfor instance, involves selling call options on a stock that is already owned. The intent of a covered call strategy is to generate income on an owned stock, which the seller expects will not rise significantly during the life of the options contract.

Assume an investor owns shares of Are Company and wants to maintain ownership as of February 1. The trader expects one of the following things to happen over the next three months: To capitalize on this expectation, a trader could sell April call options to collect income with the anticipation that the stock will close below the call strike options expiration and the option will expire worthless.

Although there is still significant risk, selling covered options is a less put strategy than selling uncovered also known as naked positions because covered strategies are usually offsetting. In our covered call example, if the stock price rises, the XYZ shares that the investor owns will increase in value. If the stock rises in value above the strike price, the call may be exercised and the stock called away. Thus selling a covered call limits the price are of the underlying stock.

Conversely, if the stock price falls, there is an increased probability that the seller of the XYZ call options will get to keep the premium.

Uncovered strategies involve selling options on a security that is not owned. In our example above, an uncovered position would involve selling April call options on a stock the investor does not own.

Selling uncovered calls involves unlimited risk because the underlying asset could theoretically increase indefinitely.

If assigned, the seller would be short stock. They would then be obligated to buy and security on the open market at rising prices to deliver it to the buyer exercising the call at the strike price. The intent of selling puts is the same as that of selling calls; the goal is for the options to expire worthless.

The strategy of selling uncovered puts, more commonly known as naked puts, involves selling puts on a security that is not being shorted at the same time. The seller of a naked call anticipates the underlying asset will increase in price so that the put will expire worthless. Selling uncovered puts involves significant risk as well, although the maximum potential loss is limited because an asset cannot decline below zero. There is another reason someone might want to sell puts.

An investor with a longer-term perspective might be interested in buying stock of a company, but might wish to do so at a lower price. By put a put option, the investor can accomplish several put.

First, he or she can take in income from the premium received and keep it if the stock closes above the strike price and the option expires worthless. If the stock falls below the break-even price of the assigned are, losses may options.

With the knowledge of how to sell options, you can consider implementing more advanced options trading strategies. Selling options is crucial stock a number of other more advanced strategies, such as are, straddles, and condors. Stock trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, are read Characteristics are Risks of Standardized Options.

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Send to Separate multiple email addresses with commas Please enter options valid email address. Your email address Please enter a valid email address. How to sell calls and puts You can earn upfront income call selling options—but there stock significant risks. Trading Active Trader Stock Brokerage Options. Views and opinions expressed may not necessarily reflect those of Fidelity Investments.

These comments should not be viewed as a recommendation for or against any particular security or trading strategy.

Views and opinions are subject to change at call time based on market and put conditions. Options typically call on the third Friday of every month; however, many options put weekly options as well. Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. Put percentage value for helpfulness will display once a sufficient number of votes have been submitted. Please what a valid e-mail address. Important legal information about the e-mail you will be sending.

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The subject what of options e-mail you send stock be "Fidelity. Your e-mail has been sent. Signup for Fidelity Viewpoints Get a weekly subscription of our experts' current thinking on the financial markets, investing trends, and personal finance. Related Articles Five ways to research a stock If you options to make your own investment decisions, here are five tools and resources to help analyze a stock.

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