Understanding the Basics of Puts and Calls

A derivative is a kind of security which is actually derived from any underlying security. When you have a derivative you sell a stock, you have a put; when you have a derivative to buy a stock, you have a call. Money can actually be used in keeping regards regarding derivatives such as the purchased puts and calls.

If one sells puts and calls for dummies, this is to be recorded as a transaction for standard buy and sell. You will have a regular transaction of sales if the person you sold the put would exercise it. This is also applicable when a call is sold. However, the put or call is going to be recorded as miscellaneous or another income if the sold put or call is never exercised. Usually, single investors would not actually exercise any put or call that they would purchase. They would instead sell the option from whom they purchased it. Yet, it is also good to exercise puts and calls for dummies; you just need to know how to keep necessary records keenly.

To be able to record the exercise of a put, its sale should be recorded as priced zero. Using the zero-value will allow you to record the expiration of the option. The actual sales of the puts and calls for dummies should also be recorded. You need to remember that the put is the option used in selling stocks. The sales of call options should also be recorded at price zero. You can also record the expiration of the call when you do this. This needs to be recorded as a normal buy transaction. It is crucial to bear in mind that you are buying a security when you buy a call option.

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