Put option:  A put option is a contract that provides the buyer the right to sell a security.

Call Option:  A call option is a contract that provides the buyer the right to purchase a security.

With regard to each of these types of contracts, the buyer has the right, but not the obligation, to exercise the option at a specified price (i.e., the “strike price”) until the contract’s expiration date.  Some put and call options may be purchased on the open market.  As an alternative to exercising put and call options, investors can resell these options on the open market before their expiration.

Caution:  This entry applies to put and call options purchased on the market.  It does not apply to:

• Call options acquired through an employment relationship, such as through an employee stock purchase plan or an incentive stock option plan.  See the “Employee Stock Purchase Plan” and “Option (incentive stock option plan)” entries for additional information about these types of employment-related options.
• Put or call options that have been “written” rather than purchased.  An option writer does not have the choice to buy or sell but rather must buy or sell if an investor exercises the option written.  For this case, see the “Option (put or call written)” entry.