Call Options
The Call Option is the most basic and simplest Option to understand. We introduce what a Call Option is simple language that anyone can understand. We use real-world examples to explain how a Call Option would work in real life. This example should make it absolutely clear what a Call Option is. We also introduce the concept of Option buyers and sellers, and how different each one's risk and reward profile is. Several basic Options concepts are also introduced in this course, so this course is a prerequisite for all the other courses in this module. We extend the real world example of Call Options to real Options on Apple (AAPL) on a live trading platform
What you will master
- What are Options, and what are Call Options
- What are the fundamental differences between Stocks and Options
- What are the factors affecting Option prices
- An excellent real world example of a Call Option
- What are At-the-money (ATM), Out-of-the-money (OTM) and In-the-money (ITM) Options
- The risk profile of a buyer and seller seems to be skewed – why is this ?
- What are the rights and obligations of the buyer and seller of Options
- What are the things going for the seller of an Option
- Breakeven analysis and Profit and Loss graphs for buyers and sellers
- How real Options are represented in the financial markets
- Translate real world Options into AAPL Call Options
WATCH
Is this the basic course on Call options ? there are a couple of them, want to know which one to buy first
Yes, this is the basics – This module is the introduction to Options.
Hello, can you tell me what is a long stock and how is it different from long call?
Long stock is when you hold a stock in your account. Long Call is similar i.e you hold Call options (which you can exercise for stock) by the expiry date. Its a similar position. Calls are a bullish instrument, its just like buying stock. Puts, on the other hand are a bearish instrument. If you own Puts, you are bearish, and its like shorting stock.
What happens if you buy a long call and the stock pays a dividend. does the holder of the long call have to pay a dividend to the write of the call option?
No. If the stock pays a dividend, generally the stock price will come down by the amount of dividend. Your call option will not be affected.
This has been a great help Hari. I cant say thank you enough. I just made my first call buys last week. Excellent site
Hi Hari, The horizontal axis is the underlying price I assume, the vertical axis is the profit or loss – why the difference between expiration and 60days? appreciate your help
Hari…great stuff…Nat…get some flash cards
Thanks Milton.
Hi Hari please don’t mind me asking this silly question. say if i write an option but there might be many other people writing exactly the same option as i did What are the chances that the option i wrote being exercised? Is this random? Thanks a lot – love the info here!
Jake, it is random. Thats why we deal in Contracts. It does not matter who is on the other side.
Hi Hari, Thank you so much for the site. Great work. I need your help understanding the graphs. Do you have a course on graphs ? Thanks in advance, Wen
Wendy each one of our courses have risk graphs in all of them. I do introduce it in Module II
Ok I’m a little confused here. Let’s say I buy a call. This means I have the right to buy at a given price. Now lets say the value of stock reaches higher than the strike price. Is there a way to realize the profit without actually buying the underlying stock? I don’t want to own stock
Pete you can sell your option at any time. If it has a profit, you’ll be selling it for a higher price. The transaction is called “Sell to close” but you don’t have to worry about that. Just pick the option and place an order to sell..