• Category: Beginner

A Basic Introduction to CALL and PUT Options

CALL and PUT options are the most basic types of binary options. Most traders will begin trading with these first before progressing to other types of binary options such as one-touch or 60-second options.

A Basic Introduction to CALL and PUT Options

Before executing that first trade, you need to thoroughly understand what a CALL option is, what a PUT option is and how to use them in trading.

What is a CALL option?

A CALL option is the binary options contract you buy when you predict that the price movement of an asset will rise above its current price within a specified amount of time.

The best time to enter a CALL option is when the prices of assets in the market are on a steady increase. This is known as a bullish market i.e. when the market is on an increasing trend over a certain period.

When undertaking a CALL option, it is important that you keenly keep track of the market movement. This rule actually applies to binary options trading in general. Any slight changes in the market can cause your prediction to be wrong and therefore you could end your trade out of the money.

What is a PUT Option?

A PUT option is a binary options contract that you buy when you predict that the price movement of an asset will be a downward trend and will fall below its initial price.

To get your predictions right, you need to keenly analyze the markets before undertaking a PUT option. The best time to undertake a PUT option is when the price of an asset starts out on a steady decline. A market that is in a decline is known as a bearish market.

Using both CALL and PUT options in trading

Sometimes, traders opt to combine their CALL options and PUT options as a trading strategy. This tactic is also known as the Straddle and it leverages in the money PUT options and in the money CALL options.

With the straddle technique, you simply choose the price you want to sell i.e. undertake a PUT option and the price at which you would like to buy i.e. undertake a CALL option. In essence, this technique lowers your risk if you select a suitable expiration time.

The straddle strategy puts you in an ‘in the money’ range and is a great approach for beginners because as mentioned above, it can help to significantly lower your risk.

Focusing on a single asset

In the basic CALL and PUT options trading, traders focus on trading just one asset. It is always recommendable to trade assets that you know about and that you have been analyzing for a while.

The more you understand how an asset behaves in the market, the better placed you will be to make correct price movement predictions about that asset.

Basic technical and fundamental analysis will help you to get a better understanding of the price patters and trends of a particular market.

In summary

·       Traders undertake a CALL option when they predict that the price of an asset will rise above current price.

·       PUT options are bought when you predict that the price of an asset will fall below its current price within a specified time. 

·       Whether you use the basic CALL and PUT options strategy or the combined straddle, be sure to start with a small investment to avoid the risk of massive losses, before progressing to larger investments.

 
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