Sunday, December 31, 2006
Are Calls and Puts Opposite?
Ok, here comes a question about whether calls and puts are opposite, a question raised by Ron. You know what? I don't know the answer until recently.
I posted the same question in a local forum and the following are some of the replies:
"Yes, a long call is opposite of a long put."
"The premium of a Call option moves in opposite direction to that of a Put option with regards to the movement of stock price."
"Yes..they are opposite. Cos ie. a Put option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. And this is the opposite of a Call option, which gives the holder the right to buy the underlying."
""buy call" and "buy put" is opposite as both wish the option to go for different direction. However, when trader "sell call", basically he/she is wish the option to move the same direction as "buy put". while "sell put" and "buy call" is the other case. Hence, whether is put or call, is relying on how you wish to construct your trade."
Well, are these answers good enough? Floor traders will likely say "not good enough". Maybe I am used to the challenge from Scott Kramer who was at O'Connor & Assoc and is now an Optionetics writer/instructor as well as Alex Mendoza who was formerly from Sesquehana and is now a leading Optionetics instructor. These ex-floor traders have their subtle knowledge on options beyond our imagination and typically they can tell you lots of stories by simply reading the options chain (and not parity graphs like me).
Anyway, the only thing we can say about calls and puts is that they are both instruments that can be used by a trader/investor. Calls is a long instrument while Puts is a short instrument and that's all we can say about the difference between calls and puts. In fact, when one is exposed to the world of synthetics, he will know that the following 6 synthetic positions can be created by using calls, puts and stocks:
Synethetic Long Stock and Synthetic Short Stock
Synethetic Long Call and Synthetic Short Call
Synethetic Long Put and Synethetic Short Put
So, a bullish position can be created by using call (which is what beginners may say) but at the same time, it can be created by using put and put plus stock. There are many examples of this kind one can learn in OU.
Good trading!
Greeksman
I posted the same question in a local forum and the following are some of the replies:
"Yes, a long call is opposite of a long put."
"The premium of a Call option moves in opposite direction to that of a Put option with regards to the movement of stock price."
"Yes..they are opposite. Cos ie. a Put option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. And this is the opposite of a Call option, which gives the holder the right to buy the underlying."
""buy call" and "buy put" is opposite as both wish the option to go for different direction. However, when trader "sell call", basically he/she is wish the option to move the same direction as "buy put". while "sell put" and "buy call" is the other case. Hence, whether is put or call, is relying on how you wish to construct your trade."
Well, are these answers good enough? Floor traders will likely say "not good enough". Maybe I am used to the challenge from Scott Kramer who was at O'Connor & Assoc and is now an Optionetics writer/instructor as well as Alex Mendoza who was formerly from Sesquehana and is now a leading Optionetics instructor. These ex-floor traders have their subtle knowledge on options beyond our imagination and typically they can tell you lots of stories by simply reading the options chain (and not parity graphs like me).
Anyway, the only thing we can say about calls and puts is that they are both instruments that can be used by a trader/investor. Calls is a long instrument while Puts is a short instrument and that's all we can say about the difference between calls and puts. In fact, when one is exposed to the world of synthetics, he will know that the following 6 synthetic positions can be created by using calls, puts and stocks:
Synethetic Long Stock and Synthetic Short Stock
Synethetic Long Call and Synthetic Short Call
Synethetic Long Put and Synethetic Short Put
So, a bullish position can be created by using call (which is what beginners may say) but at the same time, it can be created by using put and put plus stock. There are many examples of this kind one can learn in OU.
Good trading!
Greeksman
# posted by Greeksman @ 1:42 AM 
