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In this option trading strategy, the trader buys a call — referred to as “going long” a call — and expects the stock price to exceed the strike price by expiration.
Here's a look at the basics of options trading, including how options work and how they can be used. ... A standard options contract is for 100 shares of stock. There are also two types of positions:
Put options rise in price when the underlying stock falls in price, and this basic option strategy gives the put owner the ability to multiply their money over the duration of the option contract ...
Equity options are the most common type of equity derivative. [1] They provide the right, but not the obligation, to buy (call) or sell (put) a quantity of stock (1 contract = 100 shares of stock), at a set price (strike price), within a certain period of time (prior to the expiration date).
Option values vary with the value of the underlying instrument over time. The price of the call contract must act as a proxy response for the valuation of: the expected intrinsic value of the option, defined as the expected value of the difference between the strike price and the market value, i.e., max[S−X, 0]. [3]
It is necessary to assess how high the stock price can go and the time frame in which the rally will occur in order to select the optimum trading strategy. Moderately bullish options traders usually set a target price for the bull run and utilize bull spreads to reduce cost. (It does not reduce risk because the options can still expire worthless.)
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