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Puts Vs. Calls. What's the Difference?

We have already established how options are like insurance. Using that same thought, you buy insurance for different reasons. Some insurance policies cover your physical assets, while other policies may cover lost revenue or potential liability. Explaining the different between puts and calls is much like that.

Puts gain value in a falling market, so they are well suited to protect you from lower prices. Call options, on the other hand, gain value in a rising market. The use of calls, then, is a great fit for protecting you from rising prices.

While not everyone will use both puts and calls, each of them have applications in the market for a variety of users all the time. Different strategies may also involve the purchase of either a put or call, and then the sale of the other. But that is another conversation for another time.

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