When regarding stocks why are put options sometimes better t

When regarding stocks, why are put options sometimes better than call options, and other times it\'s the reverse. How can investors make money while using either a put or a call options?

Solution

A call option allows an investor to buy the underlying asset at the strike price anytime before expiry. This is useful in situations when the prices are rising. A put option allows the investor to sell the asset at the strike price. This is beneficial in situations when the prices are falling.

When a call option is purchased, the buyer can make money by buying a security at a price lower than the market price. Profit = Market price- Strike price- Premium

When put option is purchased, investor can make profits by selling at a price higher than market price.

Profit = Strike- Market price- Premium