What is puts and calls means under option for a stock?

**Puts and Calls** are the two primary types of options contracts that derive their value from underlying assets such as stocks, currencies, bonds, commodities, futures, and indexes. Here's a breakdown of what they mean and how they function: 1. **Puts**: - A put option gives the holder the right, but not the obligation, to sell an underlying asset at a specified price, known as the strike price, on or before a specific date, called the expiration date. - The contract is said to be "in-the-money" (ITM) if the underlying asset's spot price is below the strike price. In this case, the put option has intrinsic value, which is the difference between the strike price and the spot price. - Puts are typically used for hedging purposes or to speculate on downside price action. They are less commonly used for outright purchase, as they are more expensive than calls and provide no value when the underlying asset's price rises. 2. **Calls**: - A call option gives the holder the right, but not the obligation, to buy an underlying asset at a specified strike price on or before a specific expiration date. - Like puts, a call option is considered ITM if the underlying asset's spot price is above the strike price. In this case, the call option has intrinsic value, which is the difference between the spot price and the strike price. - Calls are often used for income generation, speculation, and tax management. They can be a way for investors to accumulate a position in a stock they believe has higher intrinsic value than the current market price. In summary, puts and calls are essential derivatives that allow investors to hedge against potential losses or gain from the movement of underlying assets. They provide flexibility in investment strategies but come with their own set of risks and considerations.