Call & Put Options - The creative explanation :)

Basically, there are 2 types of options, namely, call option and put option. For both type of options, it is worth more money only when you can make money out of it and it becomes rather worthless when you can no longer make money from it. When it expired, it's worth nothing at all.

Call Option

This is a contract that allows you to buy a specified stock at a specified price before it's expiry.

Let's take McDonald's for example. Supposed, McChicken is for sale for $3, and there's a McChicken coupon that can buy it at $2.60 instead. This analogy, the coupon is the call option and the McChicken is the stock. The coupon is worth $0.40 as it allows you to buy McChicken at $2.60 instead of $3.00.

But this coupon has an expiry date. Once it expires, it's totally worthless.

Supposed, McDonald's now come up with a special offer that sells McChicken at $2 instead! Then that coupon you hold will become almost worthless, but it's still of some value as it hasn't reached the expiry yet and we don't know when this special offer will last. So people may still trade the coupon at certain values, but much less than in the earlier example. :)

Put Option

This is a contract that allows you to sell a specified stock at a specified price before it's expiry.

Let's take Singtel and iPhone as an example. Supposed Singtel has this trade-in promotion where they intend to buy back iPhone at $200, but you must show them the promotion flyer before the promotion ends. In this analogy, iPhone is the stock, the flyer is the put option. Supposed another shop M1 is selling 2nd hand iPhone at $180. So the flyer is now worth $20 as it allows you to sell iPhone at $200 but you only need to pay $180 for the phone itself.

Of course, as usual, once the promotion deadline on the flyer expires, the promotion ends and the flyer will be worthless.

On the next day, M1 sold all it's iPhone. Only Starhub is selling iPhone at $210. But the flyer of the trade-in promotion still has minimal value although quite worthless as it is not expired yet, because we never know when Starhub will come up with a promotion to sell iPhone at a price less than $100 before the flyer's trade-in promotion ends. So people may still want to buy the flyer but at a much lower price of course, maybe just $0.01 per flyer.