Intermediate to advanced options strategy knowledge
Long Call
I. Introduction to basic concepts
Like stocks, options are financial securities that can be traded. It comes in two types, a call option (call) and a put option (put).
Buying a call option means you have to spend money (option premium) to buy a contract. This contract gives you the right to buy a certain asset (the underlying asset) at the currently agreed price (exercise price) for an agreed period of time. Of course, you can also choose not to exercise this right.
For example, in the US stock market, you spent $100 to buy a call option on TUTU shares. The exercise price was $1,000, and the expiration date was X, 202X. This means that you have the right to buy 100 shares of TUTU at a price of $1,000 per share on or before X, 202X.
At expiration, if the price of TUTU exceeds 1,000 US dollars, for example 1,200 US dollars, at this time, you can choose to exercise your rights, get 100 TUTU shares at a price of 1,000 US dollars per share, then sell them at a market price of 1,200 US dollars per share, making a profit of 200 US dollars per share. After subtracting the premium of $100 paid, you can make a total profit of 200*100-100=19900 US dollars.
At the time of expiration, if the price of TUTU falls below $1,000, for example $800, at this point, you will give up your rights and lose $100 of the cost of buying the option.
In actual operation, the price of options will follow the continuous changes in stock prices, and most investors will not choose to exercise their rights to close their positions. Instead, it will buy low and sell high, just like trading stocks, and get income from the spread. For example, if you spend 100 US dollars to buy a call that costs 1 dollar, the price of the call will also rise when the corresponding stock rises. Assuming it rises to 1.2 US dollars, at this point, you can get a profit of (1.2-1) *100 = 20 US dollars.
II. Introduction to trading characteristics
1. Stock price rises, call price rises
Normally, the call price moves in the same direction as the corresponding underlying stock, so it is expected that the stock price will rise, and you can make money by buying a call.
2. Be small and big
Leverage is one of the main reasons options are appealing. The leverage effect of Call is that under normal circumstances, when the underlying stock rises, Call rises more; when the underlying stock falls, Call also falls more. Therefore, it is expected that the stock price will rise, and it is possible to make a big deal by buying calls.
3. Limited loss and unlimited profit
The biggest loss in buying a call is the cost of buying a call, and the biggest profit is theoretically unlimited, because theoretically speaking, there is unlimited room for growth in original stocks.
3. How to actually operate?
How to make a purchase call? Just 3 steps
1. Find all of the original shares
2. Select the expiration date and exercise price
The expiration date is the last date for an option to be fulfilled. The time value of an option usually decreases naturally as the expiration date approaches. If the time remaining on a call option is too short, the underlying stock may not rise to the expected level in the remaining time; if the remaining time is too long, the option price is usually more expensive, and liquidity is often worse. Everyone should choose an appropriate expiration date according to their trading strategy.
The exercise price is the price of an asset to be traded as agreed in an options contract. According to the relationship between the market price of the underlying stock and the exercise price, bullish options can be divided into three types of bullish options: real value, flat value, and false value. Under the same conditions, they show the following characteristics. Everyone can choose a reasonable exercise price according to their own trading strategies.
3. Enter the purchase price and number of tickets, and place an order to buy a call
Tips: In the US stock market, the price of a stock option corresponds to an option premium for 1 underlying share, but options trading is in units of shares. 1 option corresponds to 100 underlying shares, so when you buy 1 option priced at 1 US dollar, it costs 100 US dollars.
