Series 4

Introduction - Bullish Vs. Bearish

Bullish

Investors who believe that a stock price will increase over time are said to be bullish. Investors who buy calls are bullish on the underlying stock. That is, they believe that the stock price will rise and have paid for the right to purchase the stock at a specific price known as the exercise price or strike price. An investor who has sold puts is also considered to be bullish on the stock. The seller of a put has an obligation to buy the stock and, therefore, believes that the stock price will rise.

Bearish

Investors who believe that a stock price will decline are said to be bearish. The seller of a call has an obligation to sell the stock to the purchaser at a specified price and believes that the stock price will fall and is therefore bearish. The buyer of a put wants the price to drop so that they may sell the stock at a higher price to the seller of the put contract. They are also considered to be bearish on the stock.

Calls Puts
Buyers Bullish:

Have right to buy stock, want stock price to rise

Bearish:

Have right to sell stock, want stock to fall

Sellers Bearish:

Have obligation to sell stock, want stock price to fall

Bullish:

Have obligation to buy stock, want stock price to rise

Buyer Vs. Seller

Buyer Seller
Owner Long Know as Writer Short
Rights Has Obligations
Maximum Speculative Profit Objective Premium Income
With an Opening Purchase Enters the contract With an Opening Sale
Exercise Wants the option to Expire
series 4 exam materials


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