Fundamental Theory of Call Options Trading
It is common for stocks to be traded in blocks that can be divisible by 100, which is called a round. The round has become the standard trading unit of public exchanges. In the stock market, we have the right to buy and sell an unlimited number of shares, as long as someone is willing to sell, we are willing to sell at the price of buying. Typically, for brokerage firms, they set trading commissions at a minimum price of 100 units. If we buy less than 100 units of share, they still impose this commission on us. For example, if we buy 100 units of stock and pay $ 30 to the buying and selling company, they also charge us $ 30 if we buy and sell only 1 unit of stock. The amount of commission charged by brokerage firms on stock transactions varies from one and the other. Some brokers may charge less, but they ask you to trade a lot in a deal. So, each unit of the option represents 100 units of share
In fact, there are two types of options that are call and put options. A call option grants the owner the right to buy 100 shares of a company at a specified price, which is agreed between the call owner and the seller within a specified time period. Therefore, during this time, if the stock price rises, the call price will rise, and vice versa. The second option is the put option. This option grants the owner the right to sell 100 units of shares at a specified price that has been agreed between the seller and the seller within a specified period. The Put option looks like the opposite of the call option. If the stock price rises during this time, the put option price will fall. You can buy or sell a call or put. As long as someone is willing to sell, there will be people willing to buy. There may be four permutations during the transaction. The first is the purchase of a call option means to buy their own share of 100 units to buy. Second, selling calls means selling the right to buy 100 shares from you to others. The third is to buy put options means to buy their own rights to sell 100 shares.
Another way to make these differences clearer is always to remember that the call options buyer wants the stock price to go up, and the other is to sell the stock, Put options buyers looking for price per share fell. On the other hand, the call seller wants the share price to stay or fall. While options sellers expect the stock to rise. If the option buyer either handles the call or puts correctly predicted the stock's price movements, then they will profit from their actions. For options, in addition to estimating the direction of stock price movements, there is another obstacle. The hurdle is that stock price changes must occur before the deadline for options. As a shareholder, we can predict the long-term prospects of the stock by waiting for long-term changes in the stock. However, for option holders, we may not have that opportunity. This is because the options are limited; they will lose all value within a short time, usually within a few months. However, it has long-term options that can last for one to three years. Because of this constraint, time will be an important factor in determining whether an option buyer can make a profit.
The most important thing is that the option grants the buyer an intangible right to buy or sell 100 units of stock at the option price agreed upon by the buyer and seller. Therefore, the option is only one of the 100 shares of specific shares and a specific price per share agreement. Therefore, if the buyer buys the option at the wrong time, the buyer will not be able to make any profit. The wrong time means that the stock price does not move or does not move at all by the deadline. When we buy a call, it seems that we agree that we are willing to pay the price that is required to obtain the contractual right. Right, we can buy 100 shares at a fixed price per share, this right exists when we buy the option until the expiration date of the option. The call will become more valuable if the price of the stock rises above the fixed price specified in the option agreement during the period in which we purchase the option up to the time limit of the option. Just think of us buying a call option that gives us the right to buy 100 shares at a price of $ 70 per share. So that the stock price before the option period has risen to 90 dollars per share. As the owner of the call option, we have the right to buy 100 shares at $ 70, which is $ 20 less than the current market price. This is the case when the stock market price is higher than the fixed contract price specified in the call option contract. In this example, we are entitled to buy 100 units of shares as buyers, which is $ 20 less than the current market price. While we have the right to do so, we may unnecessarily enforce our rights. For example, if the stock price drops to $ 50, we do not have to buy the stock at a fixed price of $ 70, we can choose not to take any action