Investing Term of the Day:
Puts and Calls
While these sound really weird, they are very useful terms to know.
A PUT is when you offer to sell shares of stock at a minimum price for a specific amount of time.
A CALL is when you offer to buy a specific number of shares of stock as long as the price does not exceed what you have specified and as long as the offer is accepted before your deadline date.
Basically, Puts and Calls allow you to set the minimum you are willing to sell for or the maximum you are willing to pay. If the price falls within your parameters before the deadline you have set, and if someone else is looking to buy/sell at those prices, the transaction will take place. If not, the Put or Call expires and no transaction occurs.
I wish we could do the same in stores! There are many items I would consider buying if they were on sale for a price I consider reasonable. I often make a mental note to check to see if those items meet my threshold. It would be much easier if I could say to the store “Hey, I am willing to pay this amount. Let me know if it gets to that price or lower”. That is a Call.
Looking at the stock’s recent history can give you an idea of what a “good” price would be. You could then bump it up or reduce it a little to cover your transaction fee or stay within your budget.
If you are not using a Put or Call, you are buying or selling your shares using a MARKER ORDER. That is, whatever the current price is at the time of the transaction. While this gives you immediate gratification, given the price changes throughout the day, you could end up buying for more or selling for less than what you would really like to.
As a side note, not all online brokers allow Puts and Calls. Check with yours to see if this is even an option.
Do you use Puts and Calls? If so, what is the best deal you have gotten using them?