Add, Subtract, Multiply, Divide What is the value of a call or put option?
A Call option represents the right formula for calculating the option value not the requirement to purchase a set number of shares of stock at a pre-determined 'strike price' before the option reaches its expiration date. A call option is purchased in hopes that the underlying stock price will rise well above the strike price, at which point you may choose to exercise the option.
Exercising a call option is the financial equivalent of simultaneously purchasing the shares at the strike price and immediately selling them at the now higher market price.
A Put option represents the right but not the requirement to sell a set number of shares of stock which you do not yet own at a pre-determined 'strike price' before the option reaches its expiration date.
A put option is purchased in hopes that the underlying stock price will drop well below the strike price, at which point you may choose to exercise the option.
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