Option Trading Strategies such as the Long Call (Buying Call Options) involves an investor purchasing a Call Option, effectively giving them control over the underlying stock without having to outlay the money to buy shares.
How Does a Call Option Work?
Call Options are contracts over shares that give you the right, but not the obligation to buy a parcel of the related shares, at an agreed price anytime before the contract expires.
The agreed price is called the ‘Strike price’ and you can ‘exercise’ your right to buy the shares for this price at anytime throughout the life of the option. Of course you will pay a premium, or fee to own a Call Option, however, all options cost just a fraction of the shares they relate to.
As the share price rises, so too does the value of the related Call Option.
When Would Buy a Call Option?
You would employ Option Trading Strategies such as buying call options when you are looking to profit over shares that are rising in value, without having to outlay the capital needed to buy the shares outright.
An example would be if you were looking to buy some shares that were trading at say $ 20 and you had a bullish view; that is you believed the stock would go up in price over the next few months.
You could purchase a Call Option with a $ 20 strike price for say $ 1 that would give you the right to buy the shares for $ 20 anytime over the next few months. If your view on the stock was correct, your $ 1 outlay would give you the opportunity to then buy the shares at a discounted price.
How Does a Call Option Benefit You?
The major benefit for you as an investor is that you do not need to outlay large sums of money to profit from rising share prices.
When looking to buy shares, your potential downside loss can be limited through the use of Call Options. For instance, if your original view of the share price rising proved to be incorrect, your loss would be limited to a fraction of the funds you would be risking if you had of bought the shares outright.
What is Your Risk vs Reward?
PROFIT: Your maximum profit potential is unlimited depending on how high the share price rises. 
If you used your Call Option to buy the underlying shares at a lower than market value, your profit is the difference between the current share price and your lower Call Option strike price.
LOSS: Your maximum loss is limited to what you pay to own the Call Option initially.
If you never used your Call Option (exercised your right) and it expired worthless, then you would lose the whole amount that you paid to own the Call Option contract.
Your break-even point would occur when the share price increased by the amount which you paid for the Call Option.
Do You Have to Buy the Shares?
NO! When you own a Call Option, you are under no obligation to buy the shares, or ‘exercise’ your right. You control when and if you buy and you can do so at any time up until the expiry date of the Call Option.
In the event of the share price rising above the Call Option strike price, you could do one of two things:
1) You could exercise your Call Option and buy the shares at the lower strike price and then sell them to the market at their current higher trading value. The difference is your profit however you would need to outlay the capital needed to purchase the shares to do this.
2) You could sell your Call Option to another trader for a profit. This is an Option Trading Strategy called Short Term Trading and is one of the most common ways investors use stock options.
Remembering that, as the share price rises, the value of your Call Option goes up too. You could sell your Calls to the market at a higher value than what you paid to own them, and you would only be outlaying a fraction of the money you’d need to buy shares.
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