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Types of Options

There are many, many types of options (some of which are not available to retail investors like you and me). The two basic types that are listed on exchanges and most people are familiar with are call options and put options.

A call option gives the holder the right (but not the obligation) to buy the underlying stock at a pre-specified price (the strike price) at any time up to the day when the option expires. A put option is the opposite. It gives the holder the right to sell the underlying stock at the strike price until expiration.

Which option you buy depends on which why you bought the option in the first place. Insurance buyers will buy puts. Speculators can be either, depending on which way you think the stock will move during the time the option is alive. You could by both a call and a put and be protected no matter what the stock does, so long as it doesn’t just sit there. Go to the options strategies page to learn about ways to use options that (among other things) don’t depend on the stock’s future direction.

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