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Understanding Call Options

TradingCoachUK

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Published on Jul 15, 2020
#LearnToTrade #Invest #Options #Education

Welcome to our Bitesize video on Understanding Call Options.

• Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period.
• Let’s break it down and use an analogy.
• When you buy a call option, you pay a premium.
• This is just like a downpayment on a house.
• When you make a downpayment, you agree to a specific price.
• When you pay a premium on a call option, you agree to a specific price for the underlying asset within a specific time period.
• The underlying asset is the stock, bond, or commodity.
• Just like when someone makes a downpayment, they are guaranteed that price for the house, but they don’t necessarily have to buy.
• There could be a new development that could lead to a much lower value of the home, like a change in the neighbourhood or surrounding area.
• With a call option, the buyer has the right to buy at the agreed upon price, but just like the homebuyer, he doesn't have to buy.
• If at the later agreed upon time, the value of the underlying asset has gone up, then the buyer gets a good deal as long as the asset has increased in value more than the premium.
• If the value of the asset has gone down, then the buyer does not have to buy and loses his premium.
• Thank you for watching our video on call options.
• Please remember to like, subscribe, and check out some more of our other videos.
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