How do put options work in finance? what do buyer/sellers get out of it?
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You can sell a call for a $100 share of stock for something like $20. Which for simplicity $100 is the marlet price. The relative prices are set by the market.
The seller hopes the value of the stock goes down. They get to keep their $20 and the call expires unexercised, meaning the buyer gets nothing.
The buyer hopes the stock goes up by more than $20. Then the seller needs to sell him a share of stock for $100. Since the stock went up by more that $20 the buyer wins out.
If the stock price goes up by less that $20 the seller still wins, but his profit is reduced by the increase in stock price.
So it’s really a way to bet on stock prices and you can do it at a leveraged rate. Above the buyer was able to benefit from the upside of the stock and didn’t have to buy a whole share for $100, just an option at $20. So you can get 5x the upside.
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