Call options,forex news ea,equity trading terms - Review

14.11.2015 admin
Definition:A call option is an option contract in which the holder (buyer) has the right (but not the obligation) to buy a specified quantity of a security at a specified price (strike price) within a fixed period of time (until its expiration).
For the writer (seller) of a call option, it represents an obligation to sell the underlying security at the strike price if the option is exercised.
If you were to exercise your call option after the earnings report, you invoke your right to buy 100 shares of XYZ stock at $40 each and can sell them immediately in the open market for $50 a share.
Since you had paid $200 to purchase the call option, your net profit for the entire trade is $800. The short call is covered if the call option writer owns the obligated quantity of the underlying security. When the option trader write calls without owning the obligated holding of the underlying security, he is shorting the calls naked.
Call Options need Big Moves to be ProfitablePutting percentages to the breakeven number, breakeven is a 6.2% move higher in only 30 days.
In the case of the 20% loss, the option holder can strike out for over 16 months and still not lose as much as the stockholder.

The call option writer is paid a premium for taking on the risk associated with the obligation. Novice traders often start off trading options by buying calls, not only because of its simplicity but also due to the large ROI generated from successful trades. A call option contract with a strike price of $40 expiring in a month's time is being priced at $2. With this sharp rise in the underlying stock price, your call buying strategy will net you a profit of $800. It is also interesting to note that in this scenario, the call buying strategy's ROI of 400% is very much higher than the 25% ROI achieved if you were to purchase the stock itself. See our long call strategy article for a more detailed explanation as well as formulae for calculating maximum profit, maximum loss and breakeven points. Call option writers, also known as sellers, sell call options with the hope that they expire worthless so that they can pocket the premiums. The covered call is a popular option strategy that enables the stockowner to generate additional income from their stock holdings thru periodic selling of call options.

Naked short selling of calls is a highly risky option strategy and is not recommended for the novice trader. Call spreads limit the option trader's maximum loss at the expense of capping his potential profit at the same time. As each call option contract covers 100 shares, the total amount you will receive from the exercise is $1000.
Selling calls, or short call, involves more risk but can also be very profitable when done properly. Buying call options and continuing the prior examples, a trader is only risking a small 1.2% of capital for each trade.

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Rubric: Can You Make Money Trading Options


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