Options more than 100 percent

Buying calls: A beginner options strategy

Buying calls: A beginner options strategy

Like stocks, options are financial securities. There are 2 types of options: calls and puts. Calls grant you the right but not the obligation to buy stock. If you are bullish about a stock, buying calls versus buying the stock lets you control the same amount of shares with less money.

If the stock does rise, your percentage gains may be much higher than if you simply bought and sold the stock. Of course, there are unique risks associated with trading options. Read on to see whether buying calls may be an appropriate strategy for you.

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The basics of call options The buyer of call options has the right, but not the obligation, to buy an underlying security at a specified strike price. That may seem like a lot of stock market jargon, options more than 100 percent all it means is that if you were to buy call options on XYZ stock, for example, you would have the right to buy XYZ stock at an agreed-upon price before a specific date.

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The primary reason you might choose to buy a call option, as opposed to simply buying a stock, is that options enable you to control the same amount of stock with less money. The characteristics of call options Compared with buying stock, buying call options requires a little more work.

Knowing how options work is crucial to understanding whether buying calls is an appropriate strategy for you. There are several decisions that must be made before buying options. These include: The security on which to buy call options. Suppose you think XYZ Company stock is going to rise over a specific period of time.

You might consider buying XYZ call options. The trade amount that can be supported. This is the maximum amount of money you would like to use to buy call options.

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The number of options contracts to buy. Each options contract controls shares of the underlying stock.

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The strike price. This is the price at which the owner of options can buy the underlying security when the option is exercised.

The price to pay for the options. This is the price that it costs to buy options. The expiration month. Options do not last indefinitely; they have an expiration date.

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If the stock closes below the strike price and a call option has not been exercised by the expiration date, it expires worthless and the buyer no longer has the right to buy the underlying asset and the buyer loses the premium he or she paid for the option. Most stocks have options contracts that last up to nine months.

Matt specializes in writing about bank stocks, REITs, and personal finance, but he loves any investment at the right price. Follow him on Twitter to keep up with his latest work! Follow TMFMathGuy Options can be a useful investing tool when used correctly, but they can become your worst nightmare if you don't fully understand what you're getting into.

Traditional options contracts typically expire on the third Friday of each month. The type of order.

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Like stocks, options prices are constantly changing. Consequently, you can choose the type of trading order with which to purchase an options contract.

There are several types of orders, including market, limit, stop-loss, stop-limit, trailing-stop-loss, and trailing-stop-limit.

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Now, compare that with the cost of buying options more than 100 percent stock, rather than buying the call options. This illustrates the primary purpose of options. They effectively allow you to control more shares at a fraction of the price.

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