Can you explain the significance of this to (like I am five)?
Option=option to buy or sell stuff at a set price
call = the right to buy
put= the right to sell
premium=price
I=me=buyer
chriswilmer=You=seller
example for call
you sell me the right to buy 1 bitcoin at 10 USD for a premium of 0.1 bitcoins
if the price of bitcoins goes above 10 i can buy bitcoins from you at discount and you are forced to sell them, my gain is=market price-10-premium
if the price of bitcoins goes below 10 i will not use my right to buy at 10 since the market price is below 10 so the option is useless and i only lose the premium and you gain the premium
example for put
you sell me the right to sell 1 bitcoin at 10 USD for a premium of 0.1 bitcoins
if the price of bitcoins goes below 10 i can sell you 1 bitcoin for 10 USD and you are forced to buy the bitcoin at 10, my gain is=10-market price-premium
if the price of bitcoins goes above 10 i will not use the right to sell at 10 since the market price is above 10 so this option is useless i lose the premium and you gain the premium