Call Options when Renting Shares
By: P Simos
Call Options are financial contracts that exist between a buyer and a seller, based on some underlying financial instrument. One example of a financial instrument that call options are applied to is stocks. Call options are available as two different forms of a financial contract, and both of them have to do with renting shares or options trading. The difference between renting shares in options and renting shares in stocks is that when it comes to options, you are specifically buying and selling the underlying instrument at a pre set price. What this means is that you are selling or buying the right to a fixed price for a specific stock, rather than actually buying or selling the actual stock.
In renting shares, call options are often simply referred to as a Call. When someone purchases a call option, they are essentially purchasing the right to buy an option or underlying asset at an agreed upon quantity before the pre determined time where the contract expires. The agreed upon quantity is purchased at what is known as a strike price, and the strike price is a pre-determined and pre-agreed upon amount.
Let us break this down a little more simply: Call options are contracts that exist between a seller and a buyer. The call option contract allows the buyer to purchase a specific company's stock at a price that remains fixed. When the expiration date on the call option comes up, then the pre determined and pre agreed upon price is no longer a valid price. Here is an example:
Let us say that you are a buyer, and you decide to purchase a call option for a $10 strike price stock with a 60 day expiration date. Until 60 days are up and the call option expires, you can buy that stock for the $10 price no matter how the actual price of the stock changes over this period of time. Even if one day the stock is selling for $50 per share, you can still buy your shares for $10 as long as the call option has not expired.
So even if everyone else is purchasing the stock for $50, you will continue to pay $10 for each share that you buy, provided that the call option has not expired. By selling the stocks that you are purchasing them, you can immediately make back a $40 profit for each share that you sell, simply because the call option is in place. In other words, this is an excellent way to turn a significant profit through investing, as you can see an immediate turn around without having to wait for stocks prices to go up significantly. You can continue to funnel your profits into your investments, paying the lower strike price and reselling the shares for the new price to turn a profit for every share.
In general when it comes to renting shares, call options only cost a small fraction of what the actual stock costs. This allows options traders to profit a great deal, and much more quickly than those who are investing in the actual stock.
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Hello my name is Paul Simos and I am the owner of Applied Wealth Strategies. Our business is to help and educate people who are interested in becoming financially free through various wealth creation strategies. We work with and are associated with many people who are living proof that these strategies work. Click on the following link to find out more: www.appliedwealth.com
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