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A call option is an agreement that gives the option buyer the right to buy the underlying asset at a specified price within a specific time period. Generally the price of the option increases by 100 for each 1 increase in the price of the underlying stock above the strike price.

Pin On Options Trading Strategies

So say an investor bought a call option on intel with a strike price at 20 expiring in two months.

Call options for dummies. That call buyer has the right to exercise that option paying 20 per share and receiving the shares. Call options usually rise in price when the underlying asset rises in price. A call option is said to have intrinsic value if the current market price is above the strike price.

Unlike stocks calls and puts are traded in contracts. Now let s say a call option on the stock with a strike price of 165 that expires about a month from now costs 5 50 per share or 550 per contract. The writer of the call would have the obligation to deliver those shares and be happy receiving 20 for them.

Given the trader s available investment budget he or she can buy nine options for a cost of 4 950. But when you buy a call option or a put option it might cost you say 2 per share or 200 per contract. So you buy a 30 call option for 2 with a value of 200 plus commission plus any other required fees.

When you exercise a call you re buying the underlying stock or asset at. More how options work for buyers and sellers. 1 call options 2 put options with each option type we ll go through some hypothetical trade examples so you can understand scenarios when buying and selling calls and puts can be profitable.

Option spreads reviewed option spreads for dummies an option spread occurs with the purchase and sale of options of the same class of stock at the same time although with different expiration dates and strike prices. Assume that you think xyz stock in the above figure is going to trade above 30 per share by the expiration date the third friday of the month. Usually one contract is equivalent to 100 shares.

When you buy a call option you put up the option premium for the right to exercise an option to buy the underlying asset before the call option expires. If you buy 100 shares of abc stock for 30 per share it would cost you 3 000.