Buying Calls at Buying

Buying Calls. Buying calls when you start learning about options, the very first strategy you discover normally involves the purchase of a call aimed at taking advantage of a rise in the price of a stock. The odd thing is that they're buying a lot of protective put options, too.

If you want to be a little more conservative, you can also buy a call option with a strike price below the current stock price. In buying call options, the investor’s total risk is limited to the premium paid for the option. A call option, often simply labeled a call, is a contract, between the buyer and the seller of the call option, to exchange a security at a set price.

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The buyer of the call option has the right, but not the obligation, to buy an agreed quantity of a particular commodity or financial instrument (the underlying ) from the seller of the option at a certain time (the expiration date) for a certain. Instead of buying shares of the stock, you buy a call option, giving you the right to buy the stock at a lower or equal price for a certain period of time. Because calls give you so much leverage swing traders will use them to generate themselves huge gains or losses over a few days. Let's examine how buying calls can improve your yields and offer a worthwhile alternative to buying shares on margin.