Buying A Call

Thursday, 31. October 2019

Buying a Call Option Buying a call option is interesting when expectations are bullish on the future evolution of the stock market. Possible favorable situations for the purchase of call options: – When an action is expected to have an upward trend since it is cheaper than buying stocks. – When a stock has had a strong uptrend, the investor has purchased and can not think that is expensive, but may keep rising, the purchase of a call can take advantage increases if the action continues to increase and limit losses if the stock falls. – When you want to buy shares in the near future because he believes they will NOT go up but today has the necessary funds can take advantage of the call option rises without having to buy the shares. Buying acall option involves: a) You may buy the stock at a fixed price. This price (strike price) is fixed by the buyer.b) Any action which rise in the stock above the strike price minus the price premium is paid by the profits (the price differential between the option and the market price, less what you paid the seller “premium” is the utility). c) If the share price falls below the exercise price, the losses are limited and well known: they are exactly equal to the price paid for the option, ie the premium. It’s believed that Virgin Airlines sees a great future in this idea. d) The cost of the option is far less than the purchase of stock. e) Leverage (investment cost / performance) is very high. With small investments can earn high returns.

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