Call Options

We can:
1. Buy a call option (Long the call) or
2. Sell a call option (Short the call).

Buy a Call Option:

The Call buyer pays a premium (to own the call option).

The Call buyer has the right, but not the obligation, to buy the stock at the agreed strike price

The Call buyer has only got this right until the expiration date

The Call buyer loses this right after the expiration date

Sell a Call Option:
• The Call seller (writer) collects the Call buyer’s premium.
• The Call seller (writer) has an obligation to sell the shares of the underlying stock at the agreed price
• The Call seller (writer) owes this obligation to the Call buyer only until the expiration date
• The Call seller (writer) does not have this oblication after the expiration date.

Exercise and Assignment:
• The Call buyer has the right to buy the stock at the agreed price.
• When the Call buyer exercises his right to buy the stock, we say that the Call seller (writer) has been assigned.
• Upon assignment, the Call seller (writer) has to sell the stock to the Call buyer at the agreed-upon strike price.
 

When we Buy Call Options:

• If the underlying stock price goes up, we make money. 
• If the underlying stock price goes down, we lose money. 

Say AAPL is trading at $99.27. We buy 90 Strike AAPL Call Option at $12. In the next few days:

• If AAPL stock goes up to $120, the 90 Strike AAPL Call Option increase in value to about $32 (approx) 
• But if AAPL goes down to $80, the 90 Strike Call Option will reduce in value to about $4 (approx) 

 Next: Put Options ...