- What is Call Option? definition and meaning
- How a Call Option Trade Works - dummies
- Call Option Definition: Learn with Examples and Explanations
When you short sell an option there is unlimited risk involved if the stock moves in opposite of your expected market direction. There is always a possibility that the seller will not be able to fulfil his obligation to deliver the terms of the contract due to lack of funds. If the options price has increased significantly and the seller wants to close out his position by buying out the option there is possibility that he may not have sufficient funds in his account. This kind of situations will prevent markets from functioning efficiently as the counter party wont be able to get his payment. To avoid these kinds of circumstances the concept of margins were introduced in all markets across the world.
What is Call Option? definition and meaning
A put option is an option contract in which the holder (buyer) has the right (but not the obligation) to sell a specified quantity of a security at a specified price ( strike price ) within a fixed period of time (until its expiration ).
How a Call Option Trade Works - dummies
If you don't have the basic understanding of options trading, however, it can also be very expensive. Because of the short life of an option, profits and losses can add up quickly. The typical stock investor that starts trading options usually does not have a good understanding of the forces at work, they lose money on their first few trades, and then they throw their hands up in the air and say "It's too confusing--never again." Keep reading so this doesn't happen to you!
Call Option Definition: Learn with Examples and Explanations
Look at the screen print of the MSFT options above. You will see that the bid/ask spread ranges from 8 cents on the 78 strike price (bid $ / ask $) to 6 cent on the 76 strike price (bid $ / ask $).
If you 8767 re right, and XYZ is up to $85 per share by the expiration date, you can exercise your option, buy 655 shares of XYZ at $85, which costs you $8,555, and then sell it on the open market at $85, realizing a gain of $555 minus your initial $755 premium, commissions, and other fees.
PCR is a very popular indicator to measure the prevailing level of bullishness or bearishness in the market. Remember Put contract is bought by investors who are bearish and Call contracts are bought by people who are bullish. PCR is calculated as:
SEBI regulation says that if the value of the declared dividend is more than 65% of the spot price of the underlyer stock on the dividend announcement day then the strike price of the stock options are refuced by the dividend amount. If the decalred dividend is less than 65% then there is no adjustment of for the dividend by the exchange. In this case market adjusts the price of the options considering the dividend announcement.
You may want to exercise if you want to take the delivery of underlying stock and you have long/medium term interest in the stock. If you want to book profit or cut your losses, you may want to close out your position by squaring off.
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Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time... [Read on.]