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. The call option writer is paid a premium for taking on the risk associated with the obligation.

Call buying is the simplest way of trading call options. 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. You strongly believe that XYZ stock will rise sharply in the coming weeks after their earnings report.

This strategy of trading call options is known as the long call strategy. See our long call strategy article for a more detailed explanation as well as formulae for calculating maximum profit, maximum loss and breakeven points.

Instead of purchasing call options, one can also sell write them for a profit. Call option writers, also known as sellers, sell call options with the hope that they expire worthless so that they can pocket the premiums.

Selling calls, or short call, involves more risk but can also be very profitable when done properly. One can sell covered calls or naked uncovered calls.

Call and Put Options, Definitions and Examples

The short call is covered if the call option writer owns the obligated quantity of the underlying security. 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. See our covered call strategy article for more details. When the option trader write calls without owning the obligated holding of the underlying security, he is shorting the calls naked.

Naked short selling of calls is a highly risky option strategy and is not recommended for the novice trader.

Call Option Definition & Example | Investing Answers

See our naked call article to learn more about this strategy. Call spreads limit the option trader's maximum loss at the expense of capping his potential profit at the same time.

Your new trading account comes with a virtual trading platform which you can use to test out your trading strategies without risking hard-earned money. Buying straddles is a option trading wikipedia way to play earnings.

Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable.

For instance, a sell off can occur even though the earnings report is good if investors had expected great how to earn money with forex If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it anz exchange rates graphs a discount Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on anz internet business banking australia direction of the underlying within a relatively short period of time Cash dividends issued by stocks have big impact on their option prices.

This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date As an alternative to writing covered calls, one can enter a bull call call option contract example for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative Some stocks pay generous dividends every quarter.

You qualify for the dividend if you are holding sites of binary options brokers by minimum deposit the shares before the ex-dividend date To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk.

A most common way to do that is to buy stocks on margin Day trading options can be a successful, profitable strategy but there are a couple of things you anz exchange rates graphs to know before you use start using options for day trading Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions.

They are known as "the greeks" Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow Stocks, futures and binary options trading discussed on this website can be considered High-Risk Trading Operations and their execution can be very risky and may result in significant losses or even in a total loss of all funds on your account.

You should not risk more than you afford to lose.

Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Information on this website is provided strictly for informational and educational purposes only and is not intended as a trading recommendation service.

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This article is all about call options for traditional stock options. If you are looking for information pertaining to call options as used in binary option tradingplease read our writeup on binary call options instead as there are significant difference between the two.

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