Monday 13 October 2014

Is the Long Call Option the Same as the Short Put option?

Long calls are not the same as short puts. Buyers of option contracts are long, while sellers or writers of option contracts are short. Call and put options give you the right to buy or sell the underlying securities at specified prices, known as strike prices, before predetermined expiration dates. Long and short option strategies have different risk-return profiles, with downside risk usually limited for long positions.
Basics
The relationship between strike prices and market prices determines profits and losses. A long call is profitable when its strike price is below the market price of the underlying stock, while a long put is profitable when its strike price is above the market price. The reverse is usually true for short calls and puts. You pay a premium, which is the market price, when you open or buy an option contract, and you receive the premium when you sell or close an option contract.