How to invest in stock options – the mechanics of call options

Investing in the stock market may be particularly tricky. Part of the stock market, many individual investors seem to have a lot of trouble to understand the options market. Many people find options trading is very complicated, but the truth is … once you understand it and understand its operation, it can be easy.

In this article, I would like to discuss some of the basic knowledge of stock options, in terms of options for calling options. This is what I want to talk about what the call options are and how you are from their profits.

There are basically two types of stock options. The first is called the "call" option. The call option gives you the right to buy the securities at a fixed price at a future time. The second option is called the "put" option. The put option gives you the right to sell the securities at a fixed price at some time in the future.

I think most of your average investors are easy to understand this concept, but when you get more details The thing started a bit confusing, because it was not much more complicated than I had just said.

I think the best explanation is to give you an example. Imagine a company's stock price of $ 30 per share. You want to buy a call that expires within three months, giving you the right to buy a stock at a $ 35 company. This means that in the next three months, you can choose to buy the stock only 35 US dollars, no matter how high the stock price rose. It's easy to understand how you make money on such a strategy. If the stock price rises to $ 50 per share within three months, then you have the right to buy it for only $ 35; then you can resell and sell the $ 15 difference in the major stock market as you The profit.

The price to buy the option, the so-called premium, may be only 0.5 cents. The 50 basically represents the time value of the option, which is usually based on the length of time before the option expires, and sometimes the likelihood that the stock actually reaches a particular option price.

If most investors believe that the stock will have a big chance to reach $ 35 per share, then the price of the option will be higher.

The risks involved in purchasing such options are also easy to understand. If the price of the stock does not rise to $ 35 per share, then your options will expire and have no value at all. So what is your risk? Well, it's easy … you venture $ .50 or whatever it costs you to buy the option, if the stock does not exceed $ 35 per share, you will lose that money.

Now imagine the stock price rose to $ 45 per share. Your call option is now worth $ 10. How did i calculate it? It is simple that you have the right to buy the stock at $ 35 per share, and you can sell the same stake in the market for $ 45. $ 45 minus $ 35 is equal to $ 10 This is your choice now valuation. think about it! Your option for $ .50 is now worth $ 10!

Is it easy? Yes. Investment call options are not necessarily more difficult than this.