SOME COMMON MISCONCEPTIONS ABOUT PUTS AND CALLS

For this post, we talk about some common mistakes when talking about put and call options. Since the SIE exam covers options, mastering correct terminology before sitting for the exam is important.

Let's consider call options first. The purchaser of a call option, on an opening transaction, gains the right to purchase stock or some other asset, such as gold or bonds, at a certain specified price for a specified period of time.

The seller of a call, on an opening transaction, is called the "writer," and is obligated to sell stock or some other asset.

Now speaking of puts, the buyer of a put option, on an opening transaction, gains the right to sell stock or some other asset, at a certain specified price for a specified period of time.

The seller of a put, on an opening transaction, is called the "writer," and is obligated to purchase stock or some other asset.

Bob Eder's text Study for the SIE Exam contains a full discussion of put and call options in Chapter Five, page 73 through 87.

Here is the link to FINRA's Content Outline for the SIE exam. See especially Options under 2.1.3 of FINRA's Content Outline.

Study for the Securities Industry Essentials (SIE) Exam is available from Amazon in both paperback and Kindle e-book versions. 

Here is the link to Bob Eder's book on Amazon.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law in 2001.