Puts and Calls are sold by traders and large operators who make it a business
trading in and out of the market and selling Puts or Calls on the stocks that they
have bought or sold, but Puts and Calls are always endorsed by members of the New
York Stock Exchange. As a rule, Puts and Calls are sold so many points away from
the market that is, a call costs you $142.50 and the price that it is away from the
market depends upon the activity of the stock and the condition of the market. A Put
is the reverse, so many points below the price at which the market is selling that day,
depending upon the price of the stack and the activity of the market. However often traders who make it a business of selling Puts and Calls, sell them at the market price for an additional premium.
For example, Douglas Aircraft might be selling at 56 and by paying a premium $300 to the seller you could buy a Call or a Put . on Doug for 30 days at 56, therefore when it moved 3 points up or down from the price at which you bought the Call or the Put, you would have made the money back or the price of the stock would show you a profit for the money you paid out ; then when it went more than 3 points in your favor, you would have a net profit above the price you paid for the privilege, either Put or Call that you bought at the market.
As a rule, I favor buying Puts and Calls with risk limited to the price of $142.50 per
100 shares for a Call or $137.50 per 100 shares for a Put, and buying Puts or Calls a
number of points away from the price at which the stock is selling.
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