Buying Call Options

How to make money when stocks rise without paying a fortune...

Buy Call options when stock prices are rising and you'll easily make 50-100% return on your money.

This is the strategy I have used most often and the one that has made me the most money.

It also requires significantly less money than buying stocks outright.

The lucrative aspect of Calls, or any stock option for that matter, is that a stock may rise upward in price by 1% and the same price movement will cause the option to rise in price by 10%.

You get more "bang for your buck".

This is one of the major reasons people trade stock options.

Buying Calls...

If you recall from the earlier lessons, a Call option gives its buyer the right, but not the obligation, to buy shares of a stock at a specified price on or before a given date.

Calls increase in value when the underlying stock it's attached to goes up in price, and decrease in value when the stock goes down in price.

A typical use for this type of stock option is to profit from an increase in the price of the underlying stock or to lock in a good purchase price if you think the stock is going to rise significantly.

**You will most likely never exercise your rights to buy the stock. You just want to benefit from the movement of the stock without having to own it.**

Risk and Reward...

Since there is no limit to how high a stock can rise the maximum profit you can make with a call option is unlimited. As the stock continues to rise so will the value of your option.

The max you can lose with a call is the price you paid for it. So if it cost you $200 to buy the call that is as much as you can lose. A lot less money than what some people lose when they buy the stock outright.

Buying 100 shares of any stock will cost significantly more than buying a stock option yet you can often make the same amount of money. You'll see an example of this in the next lesson.

Advantages of Buying Call Options...

  • Allows you to participate in the upward movement of the stock without having to own the stock
  • You only have to risk a relatively small sum of money
  • The maximum amount you can lose on a trade is the cost of the Call
  • Leverage (using a small amount of money to make a large sum of money)
  • Higher potential investment returns

Disadvantages of Call Options...

  • The option has an expiration date so time works against you
  • The stock has to make a move upward in order for the Call to increase in value
  • If the stock stays flat or doesn't move, then the option will lose value due to time decay

Module 3: Basic Strategies

Module Lessons

  1. Option Trading Strategies
  2. A Married Put
  3. A Protective Put
  4. Buying Put Options
  5. Trading Put Options
  6. Buying Calls
  7. Call Option Trading
  8. Writing Options
  9. Covered Call Options
  10. Book: Learn Options Trading

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