Options are the top instrument traded on IQ Option. Today we will tell you what is Put and Call on IQ Option. Both concepts are inseparable from option trading.

Key TakeawaysπŸ”‘

β†’Options trading involves buying and selling contracts that grant the right to buy or sell an asset at a fixed price.
β†’Call options give the holder the right to buy an asset, while put options grant the right to sell.
β†’Successful options trading requires research, analysis, and an understanding of market trends.

What is put and call in option?

Definition of an Option

An option is a contract that allows you to buy or sell a unit of the underlying asset in the future at a fixed price. Options come in call and put varieties.

put and call on IQ Option
Put and Call on IQ Option

Example of an option

Let's take a closer look. Suppose that the current value of a company's stock is one hundred dollars per share. The buyer enters into a contract that grants the right to buy the asset at one hundred dollars per share for a limited period of time.

This type of contract is called a call option and the set price in the option contract is called the strike price. For the purpose of this example, we will say that the cost of this contract is two dollars. In other words, this is the price of the option.

Let's look at three possible scenarios.

Call option – Scenario 1.

The share price increases to 120 dollars in the given time period. In this case, the buyer can exercise the option to buy shares at one hundred dollars. And immediately sell them for 120 dollars earning twenty dollars minus the two dollars that were paid for the option for a total profit of eighteen dollars. This is 900 percent of the 2 dollar investment.

Call option - successful scenario
Call option – successful scenario

Call option – Scenario. 2.

If the share price drops for instance to 80 dollars, it isn't profitable to use the option and buy shares for 100 dollars. So the option runs out and the buyer loses the two dollars invested in the option.

Loss is limited
Loss is limited

Call option – Scenario 3.

If the share price increases to 102 two dollars, the income will be two dollars which covers the amount paid for the option. This share price beyond which the trader will make a profit is called the break-even level for the purchased option.

Break-even
Break-even

A put option works the same way but in the opposite direction. With a put option the option holder has the right to sell shares at a predetermined price.

In the example above where the share price drops with a put option the trader can buy the stock at eighty dollars and sell for 100 hundred dollars as set in the option contract. Thus making a profit.

Put option - successful scenario
Put option – successful scenario

Exercising option before expiration

A special feature of classic options is that you don't have to wait for the expiration time in order to exercise the option. For example. A trader bought a put option for the same two dollars.

And an hour later the asset price fell to eighty dollars. The trader can sell the option whenever he wants in order to make a profit.

Exercising option before expiration
Exercising option before expiration

The strike price of an option

The fixed price for buying or selling shares under a contract is called the strike price. In our previous example. The strike price was 100 dollars for a call option. The higher the strike prices compared to the current share price the cheaper the option.

This is because the price is less likely to reach a higher strike price although the potential profit is greater.

Call option
Call option

Now consider a call option in which the strike price is below the current share price. Options with strikes like these are called in the money options. Since you are already making a profit. But the cost of such options is much higher and the profit percentage is lower.

In-the-money call option
In-the-money call option

For a put option everything works exactly the opposite. The higher the strike price is compared to the current share price the more expensive the option. The lower the strike price the cheaper the option.

Put option
Put option

Expiration time

The expiration time is the deadline for using the right to buy call or sell put the asset at a fixed price the strike price. The expiration usually falls at the end of the workweek.

This means for example that you can buy an option for the end of the current week or the following week or for the last week of the selected month.

Options expiration
Options expiration

The farther the expiration is from the current date the more likely the price of the asset will move in the direction the buyer wants so the more expensive the option. The cost of options is determined by the market. IQ Option uses 13 options exchanges.

Cost of an option
Cost of an option

Market conditions depend on a combination of many factors: supply and demand among traders, price volatility in the past, time to expiration and more.

A quick start with put and call on IQ Option

Selection of an asset
Selection of an asset

Start trading with the selection of an asset. All assets are sorted by profit margin.

Profit margins
Profit margins

Analyze the price movement direction and use your judgment to determine the future rate. Will it be higher or lower than the current one.

A simple trading interface on IQ Option platform

Specify the amount of investment and the expiration time of the option. In order to buy an option use Higher button or Lower button.

Digital options interface
Digital options interface

The timer shows how much time is left before the purchase period will be completed. Prior to this movement, you can buy more options for any amount of money. Buy an option in order to start trading.

Closed positions window
Closed positions window

At the moment of expiration, you will see your profit on the options window. It will be automatically credited to your balance.

πŸ‘ Pros and πŸ‘Ž Cons of Options Trading

Pros:

  • High profit potential if executed correctly
  • Options provide leverage, allowing for potentially higher returns
  • Can be used to hedge and protect existing investments
  • Wide range of strategies available for different market conditions

Cons:

  • Can result in significant losses if not managed properly
  • Options may expire worthless, resulting in a total loss of investment
  • Complex strategies may be difficult for beginners to understand
  • Market conditions can change rapidly, making it difficult to predict outcomes
Option Type Description
Call Option A contract that gives the holder the right to buy an asset at a specified price within a certain time frame.
Put Option A contract that gives the holder the right to sell an asset at a specified price within a certain time frame.
In-the-money When an option has intrinsic value and would be profitable if exercised immediately.
Out-of-the-money When an option has no intrinsic value and would not be profitable if exercised immediately.

Trading put and call on IQ Option

Regardless of what type of options you trade binary or digital, you are always dealing with a put option or a call option. The IQ Option interface uses slightly different naming on the buttons. The Higher button is used to open a Call option when you assume an increase in the price of the underlying asset. The lower button is the equivalent of a put option. You use this option when you assume a fall in the price of the underlying asset.

Comparing the two on the basis of Which is better put or call does not make sense. Both are equally good, but used in different situations. Put and call on IQ Option refer to the direction of the transaction and therefore to the expected direction of the market.

We wish you successful trading on the IQ Option platform.

πŸ’‘ Frequently Asked Questions

  • Q: What is the difference between a call option and a put option?
    A: A call option gives the holder the right to buy an asset at a specified price, while a put option gives the holder the right to sell an asset at a specified price.
  • Q: How do I know when to buy or sell options?
    A: To make informed decisions on when to buy or sell options, conduct thorough research and analysis of the underlying asset and market trends.
  • Q: Can I lose money trading options?
    A: Yes, options trading carries the risk of loss, especially if the options expire worthless or the market moves against your position.
  • Q: How do I determine the strike price and expiration date for my options?
    A: The strike price and expiration date of an option are determined by factors such as the current market price of the underlying asset, your trading strategy, and your risk tolerance.
  • Q: Can I exercise an option before its expiration date?
    A: Yes, some options, such as American-style options, can be exercised before their expiration date. However, this may not always be advantageous, and it's essential to consider the potential outcomes before exercising early.

GENERAL RISK WARNING

The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.
Kindly note that this article does not provide any investment advice. The information presented regarding past events or potential future developments is solely an opinion and cannot be guaranteed as factual, including the provided examples. We caution readers accordingly.

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Bart Bregman

Author / IQ Option expert: "My name is Bart Bregman, I have 9 years of full-time professional trading experience. I've been trading with IQ Option for more than 7 years, mainly on the shorter time frames doing technical analyses, and have many experience with Binary Options, CFDs, Options, and Crypto trading. There is no such thing as a bad trade! As a digital nomad trader, I'm mostly traveling all over the world. Follow my journey on Instagram at https://www.instagram.com/bart_bregman/. "

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