California Notice of Option for Recording

Basics of Option Profitability A put option buyer makes a profit if the price falls below the strike price before the expiration. The exact amount of profit depends on the difference between the stock price and the option strike price at expiration or when the option position is closed.

An option is a contract giving the buyer the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) the underlying asset at a specific price on or before a certain date. People use options for income, to speculate, and to hedge risk.

Options are financial instruments that are derivatives based on the value of underlying securities such as stocks.Call options allow the holder to buy the asset at a stated price within a specific timeframe. Put options allow the holder to sell the asset at a stated price within a specific timeframe.

Now that you know the basics of options, here is an example of how they work. The strike price of $70 means that the stock price must rise above $70 before the call option is worth anything; furthermore, because the contract is $3.15 per share, the break-even price would be $73.15.

There are two types of options: calls and puts. Call options allow the option holder to purchase an asset at a specified price before or at a particular time. Put options are opposites of calls in that they allow the holder to sell an asset at a specified price before or at a particular time.

One important difference between stocks and options is that stocks give you a small piece of ownership in a company, while options are just contracts that give you the right to buy or sell the stock at a specific price by a specific date.