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What is riskier a call or a put option?

Updated: 9/13/2023
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8y ago

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IF you are BUYING the option, neither is necessarily more risky than the other. The longer the expiration date, the more likely the market will go up, so the call becomes more appealing. In both, the most you can loose is the premium paid. IF you are SELLING the option, selling the put is more risky. Because a stock can technically go to infinity, you have unlimited loss potential. When selling a call, you can only loose up to the value of the stock as long as the call is covered.

I just read the above ...it's backward.

Puts exercise if the share price is below the strike price, not above. You can potentially lose everything between the strike price and zero--I'm neglecting the premium for now. If you write calls, you can lose everything between the strike price and the share price. If it's a covered call, it's a paper loss, but if you write naked calls you lose real money. It depends on the writer's investment strategy.

Churners are more at risk with puts than are buy-and-hold guys. If I own a lot of stock that's at $102, believe it's really worth that, and want more of it anyway, why wouldn't I want to write a put with a seven-day expiration period at $100 with a $5 premium? This brings the price of the stock down to $95 per share, which is a great deal! Churners approach puts tactically: they subtract the premium from the expiration price. In this case, that would be $95. If they think the stock will be lower than $95, they know they can buy it from a broker cheaper so the put's a bad investment. If it's between $95 and $100, they'll use part of the premium to pay for the stock so it starts to look like a better deal.

Writing calls is either moderately risky or unbelievably insane. If you're in a covered call, all you can lose is the difference between the share price and the strike price, and that's "paper wealth" anyway. The flipside of a covered call is that it stabilizes transactional income. If you're trying to get out of a position slowly, or you've got so much of it you can afford to shed some, selling a thousand shares at $100 in a covered call means you know there will be $100,000 more in your brokerage account at the end of the deal.

A naked call--you offer to sell stocks you don't own in a transaction where "in the money" means share price is higher than strike price--is different: these are so risky a lot of investment houses won't trade in them. If you write a naked call for 10,000 shares at $100 and the stock shoots up to $140, you need to pull $400,000 out of thin air right now. If you write the same call and the stock drops to $70, you're golden: someone probably paid you $10 per share to do that.

So...as far as futures contracts go, here are the relative risk levels:

Low

Covered puts

Naked puts (slightly riskier because, as with all naked transactions, there's a chance the security won't be available when the option exercises)

Covered calls

Casino gambling

Naked calls

High

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Q: What is riskier a call or a put option?
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Call option and put option?

A call option allows its purchaser to buy ("call in") stocks at a certain price on a certain date--say, 100 shares of Walmart for $50 on November 1. A put option allows its purchaser to sell ("put") stocks on a certain price for a certain date. The seller of the option has to buy them (in a put) or sell them (in a call) if the option is exercised.


How do you change the price call option and put option?

Once you enter into the contract, you can't change the price.


How do you hedge a call option?

You hedge a call you sold by purchasing a put in usually the same security.


Difference between put option and call option?

The holder/purchaser/owner of a call option contract has the right to buy an asset (or call the asset away) from a writer/seller of a call option contract at the pre-determined contract or strike price. The holder/purchaser/owner of a call option contract expects the price of the underlying asset to rise during the term or duration of the call contract, for as the value of the underlying asset increases so does the value of the call option contract. Conversely, the write/seller of a call option contract expects the price of the underlying asset to remain stable or to decline. The holder/purchaser/owner of a put option contract has the right to sell an asset (or put the asset) to a writer/seller of a put option contract at the pre-determined contract or strike price. The holder/purchaser/owner of a put option contract expects the price of the underlying asset to decline during the term or duration of the put contract, for as the value of the underlying asset declines the contract value increases. Conversely, the writer/seller of a put option contract expects the price of the underlying asset to remain stable or to rise.


What position in call options is equivalent to a protective put?

An investor who purchases a put option while holding shares of the underlying stock from a previous purchase is employing a "protective put." In other words, you buy a put option on stock you already own.

Related questions

Call option and put option?

A call option allows its purchaser to buy ("call in") stocks at a certain price on a certain date--say, 100 shares of Walmart for $50 on November 1. A put option allows its purchaser to sell ("put") stocks on a certain price for a certain date. The seller of the option has to buy them (in a put) or sell them (in a call) if the option is exercised.


What is an option buy?

An option buy is when you buy an option, whether call option or put option, using the Buy To Open order.


What is the concept of put call parity about?

'Put-call parity' is a popular term used among investments. The 'put-call parity' concept is used to describe a relationship between the price of a call and put option.


What is riskier selling a covered call option or buying a call option?

It depends on what you consider risk. A lot of people think selling a stock that cost $20 for $25 when it's trading at $27 or $28 is a risk. If you're one of them, selling the call is definitely riskier. To me, selling stock that cost you $20 for $25 means you made five bucks on the deal plus whatever the premium was, so it's all good. There are two forms of risk in buying the call. The most obvious is if the call expires out-of-the-money. If so you lose your premium. The other is this: you have to pay for calls. If you bought an Acme call with a strike price of $25 and paid a $1 premium, you need to exercise at no less than $26 to avoid losing money. If the call expires with the stock at $25.50, you lose 50 cents per share. So...if you absolutely HAVE to make as much money as you possibly can, selling the call is riskier. If not, the buyer is more at risk.


How do you change the price call option and put option?

Once you enter into the contract, you can't change the price.


What are the factors that affect currency put option and currency call option premiums?

go to yahoo stocks


How do you hedge a call option?

You hedge a call you sold by purchasing a put in usually the same security.


Difference between put option and call option?

The holder/purchaser/owner of a call option contract has the right to buy an asset (or call the asset away) from a writer/seller of a call option contract at the pre-determined contract or strike price. The holder/purchaser/owner of a call option contract expects the price of the underlying asset to rise during the term or duration of the call contract, for as the value of the underlying asset increases so does the value of the call option contract. Conversely, the write/seller of a call option contract expects the price of the underlying asset to remain stable or to decline. The holder/purchaser/owner of a put option contract has the right to sell an asset (or put the asset) to a writer/seller of a put option contract at the pre-determined contract or strike price. The holder/purchaser/owner of a put option contract expects the price of the underlying asset to decline during the term or duration of the put contract, for as the value of the underlying asset declines the contract value increases. Conversely, the writer/seller of a put option contract expects the price of the underlying asset to remain stable or to rise.


How do you make conference call at nokia 5233?

make a call then put it on hold and go to option>new call>type no. and call


Can anyone solve this derivative question - piesinpiexx1-x 4 for each x belongs to 01?

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How can i get unowned Pokémons?

When you put a Pokemon in your PC, their is an option call releasing your Pokemon.


Is providing insurance a call or a put option for the insurer?

When you buy an insurance on your asset, you are essentially buying a put option on your asset for protection much like the Protective Put options trading strategy. As such, to the insurer, they are actually selling a naked put option to the buyer of the insurance.