Q2 STOCKS TO BUY

What is a Call Option? And Why Should I Buy a Call Option?

The how and why of long call options

Digital Content Manager
Oct 12, 2018 at 10:14 AM
    facebook X logo linkedin


    In the simplest terms, a call option gains value when the underlying stock rises. Buying a call is essentially a bullish bet that gives the trader the right, but not the obligation, to purchase the underlying shares for a specific price (the strike price) before an expiration day.

    Let's say Stock XYZ is trading at $39.50. A trader speculates that the price will rise in the short term. He or she then purchases a November 41 call, expiring on Nov. 16, for a $1.50 premium.

    The hope is that the underlying asset will rise well above $42.50 by the expiration date, which represents breakeven (call strike + premium paid) on the trade. Specifically, the trader's profit will accumulate the higher XYZ rises above $42.50 before expiration, with profit potential theoretically unlimited.

    The contract can be sold to close before it expires, in which case the trader's profit would stem from the gain in the option's premium over the lifetime of the trade. Or, if the trader wants to own the shares of XYZ, he or she can exercise the in-the-money call -- meaning they can buy the stock for $41 per share (the strike price), representing a discount to what they'd pay on the Street.

    So, why buy call options instead of just purchasing the stock outright? For one, there's limited risk involved in purchasing a call. The trader can only lose as much as the premium he or she initially paid. If Stock XYZ in the example above plummeted to $30, the shareholder would be out big bucks, while the call buyer would be out just the $1.50 paid at initiation.

     
     

    Which of These SUB-$5 Stocks Could 26x From Here? (AD)

    He called a rare 11x on Tesla…

    Then he called a 26x on Workhorse…

    Then an even rarer 35x on Nio Inc…

    Now Tim Bohen says these 5 tiny “America First” stocks are next up in 2025.

    They’re trading for less than $5 right now.

    But thanks to Elon & Trump’s new alliance…

    They could be off to the races in Trump’s first 100 days.

    And right now for a limited time…

    You can get the names & tickers for just $1 here. (AD)

    GRAND SLAM COUNTDOWN

     
     

    Featured Articles from Trusted Partners:

    🚀 One Stock Pick Could Change Everything in 2025
    What if one stock pick could define your success next year? Get 10 expert-vetted stocks set for 2025—plus 5 bonus picks to watch now. Get the Report →

    🆕 New Options Need New Trading Strategies
    Zero-DTE options are the newest (and hottest) options to trade.  Professional traders have rushed into the market and are making a mint.  Don’t get left behind - learn all about these options, how to trade them, market setups to profit from, plus much more. Download now →

    👀 Revealed: 3 Defensive Stocks for Your Portfolio
    Worried about the market? This free report reveals 3 under-the-radar defensive stocks for uncertain times in any kind of economy.

     

     
     

    FREE Report Download

     

    Follow us on X, Follow us on Twitter