Also note that the breakeven price on the stock trade is $50 per share, while the breakeven price on the option trade is $53 per share (not factoring in commissions or fees). Get new options ideas and up-to-the-minute data on options. Through the below example, let’s understand the same: Greg is bullish on the stock of HDFC Bank and expects the company to deliver excellent results for the quarter ended March 2019. That may not be suitable for all options traders, and you don’t want to make the mistake of buying deep out of the money options just because they are in your price range. For a relatively small upfront cost, you can enjoy a stock’s gains above the strike price until the option expires. Call options also do not move as quickly as futures contracts unless they are deep in the money. In other words, the seller (also known as the writer) of the call option can be forced to sell a stock at the strike price. Options Guy's Tips. So let’s say that IBM is at $162 at the end of October. A stop is a function of risk-reward, and as the most successful market participants know, you should never risk more than you are looking to make on any investment. Total cost: $ Manual entry options. Why Buying in-the-Money Call Options Is a Smart Move. When you buy a call, you pay the option premium in exchange for the right to buy shares at a fixed price (strike price) on or before a certain date (expiration date). For the trader to profit, the stock price has to increase more than the strike price and the options premium combined. Writing Call Options. A call option, often simply labeled a "call", is a contract, between the buyer and the seller of the call option, to exchange a security at a set price. Call options help reduce the maximum loss an investment may incur, unlike stocks, where the entire value of the investment may be lost if the stock price drops to zero. That’s less than 10% of the shares. You will also see how to find the break-even point. Investopedia uses cookies to provide you with a great user experience. The biggest advantage of buying a call option is that it magnifies the gains in a stock’s price. A Call option represents the right (but not the requirement) to purchase a set number of shares of stock at a pre-determined 'strike price' before the option reaches its expiration date. How to add options trading . Short Call. He has provided education to individual traders and investors for over 20 years. This rarely happens, and there is not much benefit to doing this, so don’t get caught up in the formal definition of buying a call option. Call Option Strategies 1. Though both shorting a call and buying a put are bearish strategies, below are the reasons why someone would rather short a call : Higher Probability of Profit(PoP) : PoP is defined as probability of making at least a cent in the trade. You can sell a call option and receive a premium for agreeing to sell a set number of shares of the underlying stock for a specified price. Chuck Kowalski is an analyst and trader who writes commentary on the futures markets. When you buy a call, you go long and have the "option" of buying the underlying stock at the option's strike price. The stock of HDFC Bank is trading at $200, and Greg is having $10000 to invest in the same. Alternatively, you could have the call exercised, in which case you would be compelled to pay $5,000 ($50 x 100 shares) and the counterparty who sold you the call would deliver the shares. Understand the steps necessary for options trading approval. Call and Put Options . In the money call, options will be more expensive than out of the money options.