Calls

Learn options trading – Sell call ( Short call)

Selling, or writing a call creates the obligation to sell a stock at a predetermined strike price. This contract is sold for a premium, and if the stock does not reach the strike price by expiration, the contract will expire worthless, therefore the writer will keep the premium as a profit. However, if the stock does rise beyond the strike price, the writer will be obligated to sell the stock at that strike.

If the call writer does not have the underlying stock on hand, a short position on the stock will be created, this is called a naked call. If the writer does own the underlying stock, the position is called a covered call, and that stock must be sold at the strike price.

Shorting a call is profitable in a bearish market.

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Learn options trading – Buy a call ( long call )

Why buy a call when you can own the underlying, one may ask. This depends on the intentions and predictions of the holder.

Buying a call is a limited risk, unlimited reward scenario. However one needs to be careful when choosing the expiration date for the contract. You might end up out of the money, and lose everything.

Long calls are profitable in a bullish market.

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Learn options trading – Calls

A call is a contract that gives the holder the right to buy the underlying stock at a predetermined strike price, by a fixed expiration date, for a premium whose value varies depending stock price, and greeks.

The contract is written by the option seller who either owns the underlying, in the case of a covered call, or does not own the underlying, in the case of a naked call.

The buyer of the contract is called the Holder, and has a long position, the seller is called the Writer, and has a short position.

It is important to note the difference between writing and holding a call:

  • Holding a call position has limited risk with unlimited reward
  • Writing a limited reward, and writing naked calls has unlimited risk, and covered calls have a very high risk (for a stock that tends to 0).
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