Call option and strike price. Only exercise the option if you want to buy or sell the actual underlying asset. Most options are not exercised, even the profitable ones. For example, a trader buys a call option for a premium of $1 on a stock with a strike price of $ Near the expiration date of the option the underlying stock is trading at $

Call option and strike price

Options Strike Price - Avoid the Typical Amateur Mistake of Picking the Wrong Option

Call option and strike price. For example, an investor purchases a call option contract on shares of ABC Company at a $5 strike price. Over the life of the option contract, the holder has the right to exercise the option and purchase shares of ABC for $ If the price of ABC shares rises to $10, the option holder can lock in a $ profit by exercising.

Call option and strike price


The strike price is defined as the price at which the holder of an options can buy in the case of a call option or sell in the case of a put option the underlying security when the option is exercised.

Hence, strike price is also known as exercise price. When selecting options to buy or sell, for options expiring on the same month, the option's price aka premium and moneyness depends on the option's strike price. For call options, the higher the strike price, the cheaper the option. Conversely, for put options, the higher the strike price, the more expensive the option. The strike price intervals vary depending on the market price and asset type of the underlying.

Index options typically have strike price intervals of 5 or 10 points while futures options generally have strike intervals of around one or two points.

Buying straddles is a great 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 results 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 at 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 the 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 spread 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 on 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 need 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.

Toggle navigation The Options Guide. Limited Unlimited Loss Potential: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds.

You should never invest money that you cannot afford to lose.


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