{"id":15,"date":"2018-10-28T18:55:47","date_gmt":"2018-10-28T23:55:47","guid":{"rendered":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/?p=15"},"modified":"2018-11-20T14:26:36","modified_gmt":"2018-11-20T19:26:36","slug":"calls-and-puts","status":"publish","type":"post","link":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/2018\/10\/calls-and-puts\/","title":{"rendered":"Calls And Puts"},"content":{"rendered":"<p style=\"text-align: center\"><strong>Blog 2: Calls And Puts<\/strong><\/p>\n<p style=\"text-align: center\"><em>Sam Hooker<\/em><\/p>\n<p>&nbsp;<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-16 aligncenter\" src=\"https:\/\/cdn-dev.vanderbilt.edu\/t2-my-dev\/wp-content\/uploads\/sites\/2989\/2018\/10\/download-1.jpg\" alt=\"download-1\" width=\"663\" height=\"371\" \/><\/p>\n<p>&nbsp;<\/p>\n<p>To start, it is important to know that an options contract grants you the <strong>right<\/strong>, but not the<br \/>\n<strong>obligation<\/strong> to buy or sell an underlying asset at a set price on or before a certain date. The two most<br \/>\ncommon uses of options are to buy a <strong>call<\/strong> or put <strong>option<\/strong>. A call option gives the holder the right, but not the obligation to buy a stock at an agreed upon price if it is before an agreed upon date. For example, lets say I am an investor and right now stock XYZ is at $100, but I think in the next month it will go up to $150. I can purchase a stock option right now for the right to buy stock XYZ anytime in the next month for $100. In order to purchase this option I will have to pay a premium to the issuer. For this example lets say the premium is $10. If in two weeks the stock price is $125, I can exercise the option and trade the issuer $100 for his stock of XYZ currently valued at $125. In this example the profit I would have made is $125 &#8211; $100 &#8211; $10 = $15.<\/p>\n<p>&nbsp;<\/p>\n<p>Now, lets say that the stock went to $90 instead of $125. Unfortunately, if you purchase a call<br \/>\noption on a stock and the price of the underlying asset goes down, you will lose money. Again, the<br \/>\nmaximum amount you can lose is the premium paid, so the investor would only lose $10. In order to break even on this trade, the price of the stock would have to go to at least $100(par) + $10(premium) = $110. A put option gives the holder the right but not the obligation to sell the stock at an agreed upon price before an agreed upon date. Purchasing a put option operates almost as an insurance policy to the holder. For example, if I am an investor and I think stock XYZ, which is currently trading at $100, will drop in the next month, then I can purchase a put. Lets say the premium or cost to purchasing this put is $10 and in two weeks the price of the stock is at $75. I have the choice of executing my option and trading the issuer my stock of company XYZ for $100. Vice versa if the price of the stock goes up, I will choose not to exercise the option and I will lose the premium paid.<\/p>\n<p>&nbsp;<\/p>\n<p>To summarize, one of the reasons why options are attractive is because of the much higher ROI<br \/>\ncompared to just purchasing a stock. For example if I buy stock XYZ for $100 and in 2 weeks it is at $150, than I made $50, a ROI of 50%. However, if I purchased a stock option at $100 for $10 and the price rose to $150 than I would have made ($150-$100-$10) $40, a ROI of 400%. This is why investing with options is an effective strategy to add leverage. Instead of risking the $100 to buy the stock, which could have gone to zero, this investor only risked $10.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Blog 2: Calls And Puts Sam Hooker &nbsp; &nbsp; To start, it is important to know that an options contract grants you the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date. The two most common uses of options are to buy&#8230;<\/p>\n","protected":false},"author":7943,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-15","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/posts\/15","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/users\/7943"}],"replies":[{"embeddable":true,"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/comments?post=15"}],"version-history":[{"count":5,"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/posts\/15\/revisions"}],"predecessor-version":[{"id":63,"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/posts\/15\/revisions\/63"}],"wp:attachment":[{"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/media?parent=15"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/categories?post=15"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/my.dev.vanderbilt.edu\/samhooker\/wp-json\/wp\/v2\/tags?post=15"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}