A call option is a financial contract that gives the purchaser the right, but not the obligation, to buy the underlying asset at a predetermined price on or before a specific date. On the other hand, a put option is a financial contract that gives the purchaser the right, but not the obligation, to sell the underlying asset at a predetermined price on or before a specific date.
When an investor buys a call option, they are expressing a bullish view on the market. This means that they believe the price of the underlying asset will increase in the future. By purchasing a call option, the investor has the opportunity to profit from this anticipated price increase.
Similarly, when an investor buys a put option, they are expressing a bearish view on the market. This means that they believe the price of the underlying asset will decrease in the future. By purchasing a put option, the investor has the opportunity to profit from this anticipated price decrease.
It is important to note that both call and put options give the purchaser the right, but not the obligation, to take action. This means that the purchaser can choose whether or not to exercise the option based on their assessment of the market conditions.
In summary, call options and put options are financial contracts that give the purchaser the right, but not the obligation, to buy or sell the underlying asset at a predetermined price on or before a specific date. Call options are typically used by investors who are bullish on the market, while put options are used by investors who are bearish on the market. It is important for investors to carefully consider their market outlook and risk tolerance before engaging in options trading.
