Options were created to minimize an investor’s risk exposure; and help protect a portfolio from market fluctuations. At the same time options are considered to be high yield investments because they can help investors increase their returns.
An option is a contract that gives an investor the right to buy or sell an underlying security at a specific price on a certain date.
A “Call Option” is a contract (not obligation) to buy (long) a security at a certain price at a certain date. By contrast, a “Put Option” is a contract (not obligation) to sell (short) a security at a certain price at a certain date.
Call options can beneficial for investors if they believe the price of a security is going to increase. As the price of the security nears the agreed upon price, investors can purchase the security and sell it for gains right away.