Call Option

A call option is like a coupon.

A call option is an agreement between the buyer and the seller, which gives the buyer the right (but not the obligation) to purchase a stock from the seller at a given price, known as the strike price. A call option is only valid for a given period of time, after which it expires. The buyer of the call option pays a premium which the seller collects. In essence, a call option is a "coupon" that allows the coupon holder to purchase an item at a specific price.

Understanding covered call writing in option trading

by Philo Gabriel

When you purchase a call option, you are paying for the right to buy a certain security at a certain price in the future, if and only if it is advantageous for you to do so. The person who sells...More>
2 articles Write Now Write

Call options: What are they and how they obligate you

by Raven Lebeau

A typical call option is a contract that gives the purchaser the right to buy one hundred shares of a given stock (the underlying) at a given price, called the strike price. Although there are options...More>
3 articles Write Now Write

Understanding the tax implications when you exercise call options

by Philo Gabriel

A call option gives the purchaser the right to buy a security at a certain price in the future. For example, let’s say DrugCo is selling at $100 a share. You pay a premium of $2,000, today, to be allowed to buy 300 shares at $110 a share... More>

Understanding covered call writing in option trading

by Janet Grischy

Covered call writing is a relatively simple option strategy that can limit risk , bring in income, and possibly profit from the passing of time. A person who writes covered calls owns a stock (or other financial instrument) and sells the right to bu... More>

Options trading basics

by Joseph Pescatello

Trading stock options allows the investor to control blocks of shares at a fraction of the costs of actually owning the shares themselves. And, unlike share ownership, some option plays allow you to b...More>
5 articles Write Now Write

The difference between European and US-style options

by Raven Lebeau

All stock options have an expiration date. With a few exceptions, options expire on the third Friday of every month, known as expiration Friday. For those of us who deal in "retail options", making mo...More>
1 articles Write Now Write

Do's and don'ts of covered call writing

by Mike Scanlin

Here are 10 tips to improve your chances for success with covered call writing: Tip #1: No earnings release dates before option expiration Stocks are extra volatile just before and after an earnings release date. While that volatility can make for a... More>

YouTube expands search options with new feature called Filter and Explore

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Search technology has revolutionized much our lives in recent months, with exciting new developments on Google, Facebook and Twitter. Now YouTube is in on the act, introducing expanded services called “Filter & Explore.” According to... More>

Useful options websites

thinkorswim
Considered the best online brokerage for options traders.
Options tools from Yahoo! Finance
Find options price changes and most actives.
Using "the Greeks" to understand options pricing
"The Greeks" are parameters in the Black-Scholes model for options pricing. Understanding the Greeks can help traders make decisions when buying and selling options.

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Basic call options terminology

Expiration Friday-- the third Friday of every month, on which options for that month expire.
Writing a call-- selling a short call, i.e. selling a call option without having purchased one.
Underlying-- the stock or index on which a call option is written.
Strike price-- the price at which the holder of a call option may purchase the underlying stock.
In the money/out of the money-- if the current stock price is greater than the strike price of the call, the call is in the money. If the current stock price is less than the strike price of the call, then the call is out of the money.
Covered call-- a strategy that involves purchasing a stock and then writing a call against it.
Naked call-- a call written by someone who does not own the underlying.

Become an options expert

Options Education
Complete free, interactive lessons and receive an e-mail "certificate" when you have mastered each set of options trading concepts.
Chicago Board of Options Exchange
The CBOE website is the definitive resource on options.
Options basics from Option Monster
Free educational materials on options spreads and options pricing. An excellent place to begin learning about options.

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The Basics of Call Options

Nick Perry of Schaeffer's Investment Research explains options. If you are new to options, this slide show offers a quick "five minute" introduction to call options. It covers the basics of what a call option "is" and walks through an aggressive call buying strategy. Please note, this is only meant as a brief introduction to the topic. Please seek out more information about the risks before trading options.

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