Transcript: Understand calls vs. puts

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[CIBC Investor’s Edge]

[Understand calls vs. puts] 

[A closed laptop is shown, which opens to show a bar graph and a line graph on its monitor.]

[A CIBC Investor’s Edge employee stands in front of a wall with the CIBC logo on it and speaks.]

>> CIBC Investor’s Edge employee: There are two types of options. There are call options and there are put options. 

A call option gives the buyer the right to purchase a stock at a strike price up until the contract expires. If the owner of the call exercises her rights, the investor who sold that option is obligated to deliver shares in exchange for cash.

[An icon of a document and pen is labelled “Call option: Gives the buyer the right.” A new icon of a coin appears to the right with arrows moving out of it in both directions and is labelled “to purchase a stock.” An icon of money with a checkmark appears to the right and is labelled “at a strike price.” This wording then disappears and is replaced with: “until the contract expires.” The money icon then changes to a calendar icon. All icons and labels disappear and leave a signed document and pen icon at the left. This is labelled “Call option: If the owner of the call,” which then changes to “exercises right.” A person icon appears to the right and is labelled “the seller is obligated.” An icon of a bar graph with an arrow with an upward trajectory appears to the right and is labelled “to deliver shares for cash.”] 

A put option, on the other hand, gives the buyer the right to sell a stock at the strike price up until expiry. If a put option buyer exercises her right, then the option seller is obligated to buy the shares from her at that same strike price. 

[A document with pen icon is labelled “Put option: Gives the buyer the right.” A new icon of a coin appears to the right with arrows moving out of it in both directions and is labelled “to sell a stock.” An icon of money with a checkmark appears to the right and is labelled “strike price,” which disappears and is replaced with a calendar icon, labelled “until expiry.” All icons and labels disappear and leave a signed document and pen icon at the left. This is labelled “Put option: If the buyer exercises right.” A person icon appears to the right and is labelled “the seller is obligated.” An icon of a bar graph with an arrow with an upward trajectory appears to the right and is labelled “to buy the shares at the strike price.”]Notice a trend here? Buyers of options have rights, whereas sellers have obligations. When we buy a stock, we are buying individual shares of a company. When we buy options, we are buying contracts.

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[CIBC Investor’s Edge is a division of CIBC Investor Services Inc. This document is provided for general informational purposes only and does not constitute investment advice. The information contained in this document has been obtained from sources believed to be reliable and believed to be accurate at the time publishing, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change. The CIBC logo is a registered trademark of CIBC. The material and its contents may not be reproduced without the express written consent of CIBC.]

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