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Home Binary options Useful articles What are Put and Call Options?

What are Put and Call Options?

Trade binary options, as well as other, is similar to exchange activities. It has a fairly large arsenal of specific terminology.

Uninitiated in the basics of the financial activities people are asking: "What is the call and put options?" Let's understand and answer this simple question.

In fact, these are not two different types of options, but two types of conditions the traders face when trading binary options.

What are Put and Call Options?

What are Put and Call Options?

Option with the condition PUT (put option) - that's the deal with the condition for reducing the price of the asset. That is, such a transaction merchants conclude with certainty that the value of the traded instrument will decline. Since the term «PUT» for many is new, the brokerage company in the terminal interface locate the clue «DOWN» or "decrease", by which it becomes clear the value of this type of contract in binary option. Thus, the option PUT is a bargain at the sale of the asset.

Option with the condition CALL (call option) - that's the deal with the condition of the asset price increase. That is, such a transaction merchants conclude with certainty that the value of the traded instrument will grow. In this case the brokers also give clues to their customers by placing in the interface the word «UP» (up) or "increase", by which it becomes clear the value of this type of contract in binary option.

Thus, the option CALL is a bargain for the purchase of the asset.

These terms and conditions of contracts with binary options are applied only to the direction of price movement of the asset, but they have no effect on another significant condition, namely a term of expiration. In the classical binary options the deal is with the use of just these two conditions. That is, while trading binary options the trader selects a condition Call or Put, as well as the condition of the lifetime of the concluded deal. In this case, the profit on the contract is estimated at expiration. That is, if a trader choses condition «Call» (buys a call option) with a term of expiration 15 minutes, to make a profit you need to have the price at expiration (i.e, in 15 minutes) higher than the price of the entrance of the position (of the transaction).

The same conditions are also applied to the transaction with the condition «Put» only in the reversed order.

At the same time, it is correct to say that at the transaction on the «Call» a trader buys a call option and at the expiration of the transaction the trader makes a sale of a call option (or rather, the sale is automatically performed by the broker), and calculates the gain or loss on the transaction.

If you are interested in other terms used in trading binary options, check out our glossary of terms.

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