What is call and put option in stock market?
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Call Option: Imagine you have the right to buy a gadget for ₹10000 next month, regardless of its actual price. If the gadget’s price goes up to ₹12000 next month, you can still buy it for ₹10000, saving ₹2000. That’s what a call option allows you to do – buy something at a fixed price even if its price goes up later.
Put Option: Now, let’s say you have the right to sell a gadget for ₹10000 next month, no matter what its actual price is. If the gadget’s price drops to ₹8000 next month, you can still sell it for ₹10000, making a profit of ₹2000. That’s what a put option allows you to do – sell something at a fixed price even if its price goes down later.
In simple terms, a call option lets you buy at a fixed price, while a put option lets you sell at a fixed price. Both can help you protect against price changes in the stock market or even make some extra money.