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    Options Guide PDF

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    Lamico Dellavvoltoio
    The document provides an overview of a long call options strategy. Purchasing call options allows an investor to benefit from upside potential if the underlying stock price increases while only risking the initial premium paid. Key aspects of a long call include unlimited profit potential if the stock price rises significantly above the strike price, limited downside risk to just the premium amount, and leverage that allows participation in stock price movements at a lower cost than buying the stock outright. Time decay and volatility can impact the value of long calls as the contract approaches expiration.

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    © All Rights Reserved
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    Options Guide PDF

    Uploaded by

    Lamico Dellavvoltoio
    54 views3 pages
    The document provides an overview of a long call options strategy. Purchasing call options allows an investor to benefit from upside potential if the underlying stock price increases while only risking the initial premium paid. Key aspects of a long call include unlimited profit potential if the stock price rises significantly above the strike price, limited downside risk to just the premium amount, and leverage that allows participation in stock price movements at a lower cost than buying the stock outright. Time decay and volatility can impact the value of long calls as the contract approaches expiration.

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    firstrade.com-Options Guide.pdf

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    The document provides an overview of a long call options strategy. Purchasing call options allows an investor to benefit from upside potential if the underlying stock price increases while only risking the initial premium paid. Key aspects of a long call include unlimited profit potential if the stock price rises significantly above the strike price, limited downside risk to just the premium amount, and leverage that allows participation in stock price movements at a lower cost than buying the stock outright. Time decay and volatility can impact the value of long calls as the contract approaches expiration.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    54 views3 pages

    Options Guide PDF

    Uploaded by

    Lamico Dellavvoltoio
    The document provides an overview of a long call options strategy. Purchasing call options allows an investor to benefit from upside potential if the underlying stock price increases while only risking the initial premium paid. Key aspects of a long call include unlimited profit potential if the stock price rises significantly above the strike price, limited downside risk to just the premium amount, and leverage that allows participation in stock price movements at a lower cost than buying the stock outright. Time decay and volatility can impact the value of long calls as the contract approaches expiration.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Options Guide

    firstrade.com/content/en-us/education/guidesoptions/

    Options Strategies: Long Call


    Purchasing calls has remained the most popular strategy with investors since listed
    options were first introduced. Before moving into more complex bullish and bearish
    strategies, an investor should thoroughly understand the fundamentals about buying
    and holding call options.

    Once you feel more confident about your knowledge on options, complete the Firstrade
    online application to open your personal investment account and begin trading.

    Market Opinion?

    Bullish to Very Bullish

    When to Use?

    The long call strategy appeals to an investor who is generally more interested in the
    dollar amount of his initial investment and the leveraged financial reward that long
    calls can offer. The primary motivation of the investor of this call option strategy is to
    realize financial reward from an increase in price of the underlying security. Experience
    and precision are key to selecting the right long call option (expiration and/or strike
    price) for the most profitable result. In general, the more out-of-the-money the call is
    the more bullish the strategy, as bigger increases in the underlying stock price are
    required for the option to reach the break-even point.

    As Stock Substitute

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    An investor who buys a call instead of purchasing the underlying stock considers the
    lower dollar cost of purchasing a call contract versus an equivalent amount of stock as a
    form of insurance. The long call strategy allows uncommitted capital to be "insured"
    against a decline in the price of the call option's underlying stock, and can be invested
    elsewhere. This investor is generally more interested in the number of shares of stock
    underlying the call contracts purchased, than in the specific amount of the initial
    investment - one call option contract for each 100 shares he wants to own. While
    holding the long call option, the investor retains the right to purchase an equivalent
    number of underlying shares at any time at the predetermined strike price until the
    contract expires.

    Note: Equity option holders do not enjoy the rights due stockholders – e.g., voting
    rights, regular cash or special dividends, etc. A long call option holder must exercise the
    option and take ownership of the underlying shares to be eligible for these rights.

    Benefit

    A long call option offers a leveraged alternative to a position in the stock. As the
    contract becomes more profitable, increasing leverage can result in large percentage
    profits because purchasing calls generally requires lower up-front capital commitment
    than with an outright purchase of the underlying stock. Long call contracts offer the
    investor a pre-determined risk.

    Risk vs. Reward

    Maximum Profit: Unlimited

    Maximum Loss: Limited


    Net Premium Paid

    Upside Profit at Expiration: Stock Price - Strike Price - Premium Paid


    Assuming Stock Price above BEP

    Your maximum profit depends only on the potential price increase of the underlying
    security; in theory it is unlimited. At expiration an in-the-money call will generally be
    worth its intrinsic value. Though the potential loss is predetermined and limited in
    dollar amount, it can be as much as 100% of the premium initially paid for the call.
    Whatever your motivation for purchasing the call, weigh the potential reward against
    the potential loss of the entire premium paid.

    Break-Even-Point (BEP)?

    BEP: Strike Price + Premium Paid

    Before expiration, however, if the contract's market price has sufficient time value
    remaining, the BEP can occur at a lower stock price.

    Volatility

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    If Volatility Increases: Positive Effect
    If Volatility Decreases: Negative Effect

    Any effect of volatility on the option's total premium is on the time value portion.

    Time Decay?

    Passage of Time: Negative Effect

    The time value portion of an option's premium, which the option holder has
    "purchased" by paying for the option, generally decreases, or decays, with the passage of
    time. This decrease accelerates as the option contract approaches expiration.

    Alternatives before expiration?

    At any given time before expiration, a call option holder can sell the call in the listed
    options marketplace to close out the position. This can be done to either realize a
    profitable gain in the option's premium, or to cut a loss.

    Alternatives at expiration?

    At expiration, most investors holding an in-the-money call option will elect to sell the
    option in the marketplace if it has value, before the end of trading on the option's last
    trading day. An alternative is to exercise the call, resulting in the purchase of an
    equivalent number of underlying shares at the strike price.

    © 2020 The Options Industry Council. All Rights Reserved. Visit us online at
    www.optionseducation.org

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