When to Buy or Sell Call and Put Options?

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Options trading is an active form of trading. Standard options are of two types: put and call options. A call option means the holder may buy an underlying asset for a particular price, the strike price, at a specific time. On the other hand, the put option gives the owner the right to sell the underlying asset at a specific price over a particular period.

However, time remains a sensitive factor in options trading because the options value may quickly change due to several factors. This blog will explore when to buy and sell calls and put options based on correlating factors and trading techniques.

Let’s start the blog!

When to Buy or Sell Call Option? Let’s understand when you should buy or sell a call option with Reliance Industries’ stock. You can also take Upsurge.club’s option trading course in Hindi or English to get a deeper understanding.

Current Price of Reliance Stock = ₹2400 Option Premium = ₹40

Buying Call: You have predicted that the price of Reliance shares will go up to ₹2500. Hence, you have purchased the call option of Reliance with the strike price of ₹2500 at ₹40 option premium. Now, the stock price has reached ₹2700 before the expiration, leading you to make profits of ₹160 (200-40).

In this case, you have understood that you should purchase a call option when you feel that the stock will surely surpass the strike price plus the option premium. This will allow you to book profits. Simply put, you are buying the call option because you want; no matter how much Reliance’s share price increases, you should be able to buy the call option at ₹2500 only.

Selling Call:

Similarly, if you have predicted that the price of Reliance shares will go down to ₹2300, you should sell the call option to make the required profits. The more stock loses its price, the more money you’ll make as an option seller.

When selling a call option at a strike price of ₹2300, you typically want to have the right to sell the call option at this price, no matter whether the stock goes below ₹2100 or even less. This will allow you to make profits when the market goes down.

When to Buy or Sell Put Option? Let’s understand when you should buy or sell a put option with Reliance Industries’ stock.

Current Price of Reliance Stock = ₹2400 Option Premium = ₹40

Buying Put: When your research and analysis say that the Reliance stock may go below ₹2300, you should prefer to purchase the put option.

Suppose you buy a put option with the strike price of ₹2300 at ₹40 premium. Now, the stock price has reached ₹2100 before the expiration, leading you to make a profit of ₹160 (-40+200).

You are able to do it because you have invested before and asked the seller to purchase your stock at ₹2300 when the market price is ₹2100, allowing you to book profits.

Selling Put: Similarly, if your research and analysis says that the price of an underlying asset may increase above ₹2500, you should sell the put option to make the required profits. The more the stock’s price increases, the more money you’ll make as a call.

Options are dealt with only with lots of shares. Here, we have demonstrated the need to buy or sell the call and put option based on whether your predictions say the underlying asset goes up or down within the expiration period. Conclusion In summary, traders trying to navigate the complexity of the options market must know when to purchase and sell, call and put options. Traders might make money, control risk, and diversify their portfolios by using the techniques covered in this blog. You can learn trading in Hindi or English via various online courses offered by Upsurge.club.

(Disclaimer: Stocks recommendations by experts or brokerages are their own and not those of the website or its management. Money9.com advises readers to check with certified experts before taking any investment decisions.)