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A call option gives its buyer the right to purchase a certain issue of stock at a specified price (called the strike price) on or before a specific date. Say, 100 shares of Acme at $20 per share, for which the purchaser pays a nonrefundable premium of 75 cents per share.
A call goes in-the-money if the share price is higher than the strike price. However, it makes no financial sense to exercise the option unless the share price goes higher than the sum of the strike price plus the premium...in this case, you break even at a share price of $20.75. Since you can hold calls until they expire, you'd obviously want the share price to go higher than $20.75 because no one plays the Stock Market to break even!
There are two risks associated with calls: the call could expire worthless, which causes you to lose your premium; and the stock price might not go high enough to meet your investing goal. Back to Acme: You want to make $500 out of this transaction. The strike price is $20, the premium is 75 cents and your online broker charges $10 per transaction (10 cents per share) when you sell, so each share costs $20.85. To make $500 profit on this deal, Acme must hit at least $25.85. If the stock hits $23 and plateaus, you'll make money but not as much as you wanted.
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Buying the call option is risky?
Buying calls isn't very risky. If the option expires out-of-the-money, all you lose is your premium. If it expires enough in-the-money to cover the price of the stock plus the premium on the call, you make money--potentially a LOT of money if the stock price shoots up.
Why is selling a call or put more risky than buying a call or put?
Selling calls or puts have unlimited risk, where as buying calls or puts have a maximum risk of 100%. For instance, selling a call gives you unlimited risk because there is no ceiling on how high the price can go. However buying a call has a maximum risk of 100% of the premium you pay, this happens if you let the option expire.
Why was buying on a margine risky?
If the stock has not gone up when the margin call is due, you lose money.
What is exercising a stock option?
Exercising options is done by the option buyer. If the buyer exercises a put, he is selling to the option writer the stock. If a call is being exercised, he is buying the stock from the writer.
Buying car from person who is still paying?
Risky business, I wouldn't do it.
Can anyone solve this derivative question - piesinpiexx1-x 4 for each x belongs to 01?
We have two portfolios the first you have stock and put option with a strike price X for example ( $50 ). strategy of buying a call option with strike price X for example ( $50 ) in addition you buy a treasury bills with value equal to the exercise price of the call , and with maturity date equal to the expiration date of the two option . are you can pricing the put option if you know the call option price ? Regards,HEBA Khereba We have two portfolios the first you have stock and put option with a strike price X for example ( $50 ). strategy of buying a call option with strike price X for example ( $50 ) in addition you buy a treasury bills with value equal to the exercise price of the call , and with maturity date equal to the expiration date of the two option . are you can pricing the put option if you know the call option price ? Regards,HEBA Khereba We have two portfolios the first you have stock and put option with a strike price X for example ( $50 ). strategy of buying a call option with strike price X for example ( $50 ) in addition you buy a treasury bills with value equal to the exercise price of the call , and with maturity date equal to the expiration date of the two option . are you can pricing the put option if you know the call option price ? Regards,HEBA Khereba
What does stocks on margin mean?
05/08/08 Buying on margin means that you are buying your stocks with borrowed money_______________________________________________________________It means that you've borrowed money to finance your stock purchase. This is very risky and may lead to a margin call if the share price declines.
What does stock margin mean?
05/08/08 Buying on margin means that you are buying your stocks with borrowed money_______________________________________________________________It means that you've borrowed money to finance your stock purchase. This is very risky and may lead to a margin call if the share price declines.
Is spot trading is available in Stock market?
Yes. If you buy stocks for immediate delivery rather than selling a put option or buying a call option, you have made a "spot buy" of stock. It is a very common thing to do.
Is providing insurance a call or a put option for the insurer?
When you buy an insurance on your asset, you are essentially buying a put option on your asset for protection much like the Protective Put options trading strategy. As such, to the insurer, they are actually selling a naked put option to the buyer of the insurance.
Is buying stock a risky financial venture?
There is always some inherent risk to buying stocks. There is no guarantee they will not decrease in value after you purchase them and you can lose your whole investment.
Is call option and buy option are same or not?
As far as I know there isn't a "buy option," but a call option is an option to buy so I guess you could think of it as a "buy option."
