If the stock trades below the strike price, the option runs “out of money” and the option expires worthless. You would buy a call option if you anticipated that the price of the underlying security would rise before the option reached expiration. Each call option has a bullish buyer and a bearish seller, while put options have a bearish buyer and a bullish seller. In other words, the put option will be exercised by the buyer of the option that sells its shares at the strike price, since it is higher than the market value of the share.
Theta (Θ) represents the rate of change between the price and time of the option, or the temporal sensitivity, sometimes known as the temporary fall of an option. You would buy a put option if you considered that the price of a stock was falling before the option reached its expiration. However, if the market share price is higher than the strike price at maturity, the option seller must sell the shares to a buyer of the option at that lower strike price. Investors can sell call options to generate income, and this can be a reasonable approach when done in moderation, for example, through a secure trading strategy, such as so-called hedging.
When the option is in the money or above breakeven point, the value of the option or the rise is unlimited because the stock price could continue to rise. Option spreads are strategies that use various combinations of buying and selling different options for the desired risk-return profile. Not exercising your option means you don't buy or sell stocks and ultimately your option will expire. A call option allows you to buy shares at a certain price for a set period, and a put option allows you to sell your shares at a certain price for a certain period of time.
The delta of a call option has a range between zero and one, while the delta of a put option has a range between zero and a negative one. The risk of buying put options is limited to the loss of the premium if the option expires worthless. Theta increases when options are in the money and decreases when options go in and out of the money. Option stocks normalized in 1973, when one option became equal to one hundred shares.
