Know When to Make a Call or Put
The critical thing to remember about options trading, and one of its main advantages, is that it's all or nothing. You either profit on the trade or you lose but, and this is what is making it so accessible, you know what you stand to win and what you could potentially lose before you place your trade and therefore you can always make calculated decisions.
You can usually only choose between two main options. Your choice when trading in this way is to pick between whether the current price of an asset will rise or fall within a set time. If your prediction is right, then success, you've made a profit, but if your prediction is wrong, then you have lost the trade. Binary options trading works on the premise that you choose between making a call trade or a put trade.
This guide outlines the difference between ‘call trade’ and ‘put trade’ and how to use them to your advantage as you look to invest in binary options.
Call trades are when an investor ‘bets’ that the price of a particular company’s stock will go up in an agreed period, a put trade works the opposite way.
Calls are the right to buy, and puts the right to sell – both include an expiration point, a strike price and an underlying asset, e.g. a stock or currency.
To make the most of these mechanisms, you need to research and understand your target and the broader market carefully to be confident which direction they will go.
Call vs Put Decisions
Traders who execute binary options closely monitor financial news surrounding the asset they have in mind so they can identify any signals and determine if the asset is set to rise. The system can also work another way and can help you decide not to trade on an option due to a belief that its value will fall.
Call vs put is a simple way of representing different market positions and whenever you trade binary options, you will be choosing between put and call. As the trader, you should have control of all your trades and will need to be aware of all potential risks and rewards even before you enter any contract.
The simplicity makes binary options popular with new traders as well as experienced ones, and here we'll be looking in more depth at the differences between call vs put trades and when you might choose each one.
When to Make a Call
In simple terms, when opting for the call option you are selecting a choice with what is basically a safety net in place, this allows the owner to buy up a certain number of shares of an asset at a certain price level, often described as the strike price by a specific date, known as the expiration date/time.
Call options usually have to meet the following conditions: firstly, they must have an expiration date. Secondly, there must be a strike price, and thirdly there must be an actual underlying asset involved such as currency, commodity, stock or index.
For example, you may predict that the price of the stock of company X will rise from its current price which is $40 within the next hour. You will then decide to invest a nominal amount, perhaps $10 for this specific trade. If by the end of the hour the price has risen by even a single cent, you will win this trade. Your actual return will be your investment back plus the profit that the platform or broker is paying for winning trades. If it falls in value within the hour, you lose your trade.
When to Make a Put
A put option works oppositely to a call option. A put option means there is a safety net in place which allows the owner to sell a certain number of shares in an asset at a strike price by the expiration date/time.
Just like a call option certain conditions characterise a put option. There must be an expiration date, there must be a strike price and an actual underlying asset, as is the case of the call option.
Put options are based on you predicting if the price of an asset will decline in value within the time set by the expiration date. Using an example similar to before, you will make your prediction that the stock of company X will decrease by the end of an hour. You will once again stake a nominal amount, say $10, in this instance. Once again, if the price decreases even by a single digit, you will win the trade and receive your investment and the profit back.
Binary trading has the real potential to lead to success, once you have learned the ins and outs.
Call or Put: You Decide
Binary trading depends upon the financial common sense and experience of how binary options work. Your expertise and understanding of the markets should guide your put or call predictions, ensuring they are more than likely to be correct. With the right research, you should almost always be able to correctly predict whether to make a call option or put option. With the guidance of your broker or signal provider, this should be easily manageable.
When making a put vs call, either can be used alone or combined to provide degrees of influence or protection for your portfolio. It is possible to use them as insurance to protect any gains made if they are looking unstable.
At the simplest level, calls are the right to buy, and puts are the right to sell. Using them wisely for the benefit of your profits is dependent on your skill and experience. No trade you make should ever be a guess, not even an educated one, and this is why the background work you carry out is integral to your success.
Robert has consulted for our website for five years and is a well-established member of the team. While he is passionate about the site, most of Robert’s time is focused on his current position as CEO of a professional coaching company.