Call Options Explained

 By: Dr. John E. Ware, I 

Hey Kids, Call options are contracts that give an investor the right to purchase a stock (or other asset) at a predetermined price by a certain date. They provide investors with the potential to make far more money than could be achieved through traditional stock purchases, as well as providing flexibility in terms of when and how much they can invest. As such, call options can be a great option for those looking to manage their risk and diversify their portfolio.

When investing in call options, the most important thing to consider is the strike price. This is the predetermined price at which the investor can purchase the underlying security. It’s important to choose a strike price that is at least slightly below the current market price of the stock, as this will give you the greatest potential for profit. 

Aside from the strike price, other key factors to consider are the expiration date and the premium cost. The expiration date is the date by which the investor must decide whether or not to exercise their option. If the stock hasn’t hit the desired strike price by then, the option will expire worthless.

The premium cost is the amount of money paid upfront for the right to purchase the stock at the predetermined price. The premium cost is the fee for buying the call option, which is composed of the intrinsic value and the time value.