Stock market- earn only profit, no loss

Understanding the stock market terms

What is option?

An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a parcel of stock shares at a predetermined price possibly on, or before a predetermined date. To acquire this right the taker pays a premium to the writer (seller) of the contract.

What is call option?

Call options give the taker the right, but not the obligation, to buy the underlying shares at a predetermined stock price, on or before a predetermined date. When one expects prices to rise, then one can take a long position by buying calls. One is being bullish. When one expects the prices to fall, then one takes a short position by selling calls. Now, one is being bearish.

What is put option?

A put option gives the holder of the right to sell a specific number of shares of an agreed security at a fixed price for a period of time. When we expect prices to fall, then we take a long position by buying Puts. We are bearish here. When we expect prices to rise, then we take a short position by selling Puts.

I had assured that cash profit can be multiplied irrespective of stock market profits. Based on this premise, options are of two types- Call and Put. Call option gives one the right to buy underlying security and Put option gives the right to sell the underlying security. Call option is bought when there is probability that stock market price will soar. Similarly, put option are bought when stock prices are expected to crash. Technically, Call option give buyer the right, but not the obligation, earns more profit to buy the underlying shares at a predetermined price, on or before a predetermined date.

“Call-Put is a much safer way to online stock market trading. Here you have the limits and hence the loss is also limited. One should try in Nifty Call-Put rather then stock Call-Put as the later is not so liquid in nature. One should be clear of market trends and should respond quickly to quit and take reverse position.”

“Derivative instruments are there for hedging not for investing. Call-Put is a great option to earn great profits but it involves risks. Therefore, common investor should not indulge himself in this unit he has some amount of expertise in market. And as soon as he starts it, he is no more a common investor.”

“Call-Put is a very sophisticated instrument available in the market and a lay investor should not park his money with it. A lay investor could typically invest in shares market for long time but in Call-Put the maximum you could is for three months. Even if someone is doing so he should avoid selling option as the risk involved could be unlimited.”

The rate of Call option increases with increase in its price. If the prices of scrip go down, the rate of option premium will go down as well. Then how does one take advantage of the falling prices, how to buy stock options. When the price of a stock market shares is falling, one should buy Put option. Remember, Call option is for rising market and Put option is for falling market thus you can earn profit with stock market.