BUY A CALL

Call Buyer wants stock price to INCREASE

Call Buyer is exposed to UNLIMITED Gains

Call Buyer is exposed to LIMITED Losses

Speculative reason for buying the call:  Call buyer would be speculating on the rise of the stock by buying the call.

Insurance reason for buying the call:  You could hedge a SHORT POSITION by buying the call.

 

BUY A PUT

Put Buyer wants stock price to DECREASE

Put Buyer is exposed to LIMITED Gains

Put Buyer is exposed to LIMITED Losses

Speculative reason for buying the put:  Put buyer would be speculating on the decrease of the stock price by buying the put.

Insurance reason for buying the put:  You could hedge a LONG POSITION by buying the put.

 

SELL A CALL

Call Sellers (Writers) want the stock price to FALL

Call Sellers are exposed to LIMITED Gains (the option premium is all they would gain)

Call Sellers are exposed to UNLIMITED Losses (unlimited if writing naked options)

Speculative reason for selling the call:  Call Seller would be speculating that the stock price would decrease.

Insurance reason for selling the call:  You could hedge a LONG POSITION by selling the call.

SELL A PUT

Put Seller (writers) want the stock price to INCREASE

Put Seller is exposed to LIMITED Gains (the option premium is all they would gain)

Put Seller is exposed to LIMITED Losses

Speculative reason for selling the put: Put Seller would be speculating on the increase of the stock price.

Insurance reason for selling the put: You could hedge a SHORT POSITION by selling the Put.