calls has remained the most popular strategy with investors since listed
options were first introduced.
purchasing a long call, you are purchasing the right to purchase the stock. You
donít have to purchase the stock, but this option gives you the right to do so
at a specific price. If the stock rises above the exercise price by more than
the premium paid, you profit.
to very Bullish. You are buying the call because you believe the underlying
stock will rise.
you are bullish on a certain stock and believe it will rise in price and want
to capitalize on the profit you can make from that move.
is trading at $28.88 on February 20, 2011.
January 2012 $27.50 strike call for $4.38.
$4.38 you bought the right to buy stock at $27.50.
long call option offers a leveraged alternative to a position in the stock,
costing less than buying the underlying stock.
risk is limited, while the profit potential is unlimited.
to the price you pay for the call.
price plus premium paid.
Volatility Increases: Positive Effect
Volatility Decreases: Negative Effect
Of Time Decay
effect. The time value part of the callís premium decays over time,
accelerating as the call comes closer to expiration.
avoid time decay, sell the long option before the last month of the contract.
the stock falls under your stop loss, close out by selling the calls.
an in-the-money call. Or exercise the call and buy the stock at the strike