Call Option Definition: 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.
If you think the asset is undervalued you can place a call option predicting the value will rise. Technical analysis Technical analysis chooses investments based on market trends and market tendencies. People who use this method for selecting binary options assume that all the factors which the fundamental analyst considers, are already priced into the market.
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.
For stock options, each contract covers shares. Note: This article is all about call options for traditional stock options.
Depending on the time of day, you might also see currencies and commodities here. US And then select any strike price. This will bring up the chart and an order ticket.
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 binary option strategy if it rises sharply. Buying Call Options 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. Let us take a look at how we obtain this figure. This strategy of trading call options is known as the long call strategy.
Stock Market Basics. Here is how the strategy makes money from volatility under both price increase and decrease scenarios:.
See our long call strategy article for a more detailed explanation as well as formulae for calculating maximum profit, maximum loss and breakeven points. Selling Call Options Instead of purchasing call options, one can also sell write them for a profit.
Binary Options Trading Strategy
Call option writers, also known as sellers, sell call options with binary option strategy if it rises sharply 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. Covered Calls 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.
Naked Uncovered Calls 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. 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.