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Explain carefully the difference between writing a put option and buying a call option?
Wiki User
∙ 12y ago
When you write a put option, you are player banker to someone betting that the price of a stock is going up. You receive the "bet" in the form of the options premium earned form the person buying the put options from you. If the stock fails to exceed the strike price of the put options by expiration, the buyer has lost the bet and you keep the "bet" money as profit. In this case, your profit is limited to the "bet" money or options premium you received for selling the put options.
When you buy a call option, you are buying the right to buy a stock at a fixed price until expiration. If you buy a call option with strike price of $10 and the stock subsequently went up to $50, you can still buy the stock at $10 and then sell it for $50, making the $40 difference as profit. In this case, your profit is only limited to how high the stock rises.
Wiki User
∙ 12y ago
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What is the difference between indeterminable and undeteriminable?
There is no difference except undeterminable is not a word. In every day speech they both mean the inability to find a definite solution. In formal speech or writing, indeterminable is the correct word to be used.
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Be careful of extraneous words: it is called "writing" not "the writing process."
True or false In a rough draft you should focus on your ideas not on the mechanics of writing.?
true
What is the difference between writing a covered and a naked call option?
"Writing", "Selling" and "Granting" are all terms that can mean Going Short the option."Writing a Naked Option" is simply going short the option. It seems super risky because when you Grant Options your profit is limited to the Option Premium that you receive for the Option, yet your risk is unlimited.Naked Call - Profit Limited to Premium Received. Risk is Unlimited, if the market keeps rising, you keep losing.A "Covered Call" as you can infer from the name offers a degree of safety over the Naked Call. In a covered call you limit the risk by buying the underlying security. SO you now have two open positions:Short the CallLong the SecuritySo for example, you buy 1,000 shares of IBM at $50.Then you SELL a Call option to buy 1,000 shares of IBM at $50. You receive $3,000 for the option.So in essence, you have $3,000 (the premium received) in your account, BUT don't celebrate too quickly because you're on the hook should IBM Rise.However, the good news is that IF the market goes against you, you gain on the shares of IBM which pay off the loses on the call. Viola, you are covered.Covered Call - Limiting the risk factors inherent in option granting, naked selling or writing utilizing the underlying securities.- - - - -The difference between writing a covered and a naked call is simple.When you write a covered call, you own the underlying stock. There are some hedging strategies using puts and calls together, and you can also "lock in" profit with a covered call.Example: you own a stock you know goes up and down in price on a cyclical basis (meaning it has a pattern of ups and downs that repeats itself year to year) that you paid $20 for. You think the highest it's going to get is $45, so you write a covered call at $45. You also think it will hit $20 in six months, so you buy a one-year put at $20...but that's not part of this discussion. If it actually does hit $45 you get a nice chunk of change dropped in your brokerage account and your stock becomes someone else's problem.When you write a naked call, you don't own the stock and you believe it will never rise to the call's strike price. In that case your profit is the premium on the option. If it does you've pretty much had it unless you've got your call hedged with another call.
What happens when you Short a call option?
"Shorting a call" is better known as writing a naked call. Basically, a naked call is a call on a position you don't hold, and it has unlimited risk--if you get exercised and the strike price plus the premium is lower than the stock price, you must make up the difference out of your margin account--or you'll receive a margin call from your brokerage. Many brokerages won't allow you to write a naked call, and the ones that will demand a very large margin account and a lot of experience in trading options.
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what is the difference between subjective and objective writing
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