However, because the vertical spread generally bets on the price of the underlying security staying within a certain range, it has limited profit potential, so it may not be the best option if you are very bullish on a stock.
Essentially, a long call option strategy should be used when you are bullish on a stock and think the price of the shares will go up before the contract expires. There are many reasons to trade call options, but the general motivation is an expectation that the price of the security you're looking to buy will go up in a certain period of time. Well, call options are essentially financial securities that are tradable much like stocks and bonds - however, because you are buying a contract and not the actual stock, the process is a bit different. Conversely, "out of the money" call options are options whose underlying asset's price is currently below the strike price, making the option slightly riskier but also cheaper.
Essentially, the intrinsic value of a call option depends on whether or not that option is "in the money" - or, whether or not the value of security of that option is above the strike price or not. As explained earlier, the price at which you agree to buy the shares that are included in the call option is called the strike price, but the price that you're paying for the actual call option contract the right to buy those shares later is called the premium.
Microsoft Corporation (MSFT) Option Chain
Short Call A short call also called a "naked call" is generally a good strategy for investors who are either neutral or bearish on a stock. When you are buying a call option, you are essentially buying an agreement that, by the time of the contract's expiration, you will have the option to buy those shares that the contract represents. For options, however, the higher the volatility or, the more dramatic the price swings of that underlying security arethe more expensive the option. With this strategy, you need to be relatively bearish on the stock or underlying security, because the underlying price must stay below the strike price.
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However, you can also buy over-the-counter OTC optionswhich are facilitated by two parties annd not Mkcrosoft an exchange. A call option is a contract that gives an investor the right, but not obligation, to buy a certain amount of shares of a security or commodity at a specified price at a later time. This is a good strategy if you are very bullish on a stock and think it will increase significantly in a set period of time. For this reason, call and put options are often bullish and bearish bets respectively.
A call option contract is typically sold in bundles of optinos or so, although the amount of shares optiosn the underlying security depends on the particular contract. So, whether you're buying a put or call optionyou'll be paying a set premium just to have that contract. One of the major advantages of options trading is that it allows you to generate strong profits while hedging a position to limit downside risk in the market.