What is the difference between a call option and put option
Theoritically both look same for novice like me? You can consider buying options when there are more number of days to expiry. Both premiums would not be same. Put premium will be less than call premium. Buy put option in earlier of the month and sell call options when you are close to the end of the month. This is because volatity Vega of the option is interrelated to time value Theta , both gets reduced when you are nearing the end of the month.
Less volatility is good for selling options. More volatility is good for buying option since more time is there during month start, it gives ample chance for volatility effect to take place In selling option, you incur heavy margins being blocked when compared to buying options, the money which you may be interested in entering some other contracts.
So you need to wait until you find a suitable time to square off your selling and get the margin money released. Shorting naked options selling call option here is accompanied by high risk, you may be thinking that you are right about the market, but the market may deceive you.
So do not enter selling options which do not have good amount of liquidity. The price of the call contract must reflect the "likelihood" or chance of the call finishing in-the-money. The call contract price generally will be higher when the contract has more time to expire except in cases when a significant dividend is present and when the underlying financial instrument shows more volatility.
Determining this value is one of the central functions of financial mathematics. The most common method used is the Black—Scholes formula. Importantly, the Black-Scholes formula provides an estimate of the price of European-style options. Adjustment to Call Option: When a call option is in-the-money i. Some of them are as follows:. Similarly if the buyer is making loss on his position i. Trading options involves a constant monitoring of the option value, which is affected by the following factors:.
Moreover, the dependence of the option value to price, volatility and time is not linear — which makes the analysis even more complex. From Wikipedia, the free encyclopedia. This article is about financial options. For call options in general, see Option law. This article needs additional citations for verification.