Buying Call Option Example on Charles Schwab

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The popular misconception that 90% of all options expire worthless frightens investors into mistakenly believing that if they buy options, they'll lose money 90% of the time. But in actuality, the Chicago Board Options Exchange (CBOE) estimates that only about 30% of options expire worthless, while 10% are exercised, and the remaining 60% are traded out or closed by creating an offsetting position.
Call Buying Strategy
When you buy a call, you pay the option premium in exchange for the right to buy shares at a fixed price (strike price) on or before a certain date (expiration date). Investors most often buy calls when they are bullish on a stock or other security because it offers leverage.
For example, assume XYZ stock trades for $50. A one-month call option on the stock costs $3. Would you rather buy 100 shares of XYZ for $5,000 or would you rather buy one call option for $300 ($3 x 100 shares), with the payoff being dependent on the stock's closing price one month from now? Consider the graphic illustration of the two different scenarios below.
While both investments have unlimited upside potential in the month following their purchase, the potential loss scenarios are vastly different. Case in point: While the biggest potential loss on the option is $300, the loss on the stock purchase can be the entire $5,000 initial investment, should the share price plummet to zero.
The Bottom Line
Trading calls can be an effective way of increasing exposure to stocks or other securities, without tying up a lot of funds. Such calls are used extensively by funds and large investors, allowing both to control large amounts of shares with relatively little capital.
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#CharlesSchwab #TradingOptions #BuyingCalls
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.
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[@JakeBroe]

Give this video a LIKE to support my channel! Also check out my entire playlist on Trading Options here! kzbin.info/aero/PLscTZuOqKWIxSZzy4ObKWDznEsCot_1HU

[@lukehowerter]

I feel like I'm starting to really grasp how options work. I really appreciate the consistent examples with repetition. That repetition as I watch multiple videos on the same topic really reinforces my learning.

[@JakeBroe]

Thanks Luke! I also appreciate repetition. Helped me get it as well!

[@U_1984]

Out of all the people on the internet your explanations using the Charles Schwab trading platform are the best! Hands down and I mean it! Some people may do a good job explaining options, however they lack the platform or they dont explain it well using the platform.Keep using Charles Schwab and the way you are explaining things is just right on the money or as they say ITM lol.

[@JakeBroe]

Awesome! Thanks so much for saying so Replica! Cheers!

[@billyrbii]

I agree!

[@Fzaman999]

Thank you for explaining in clean and simple way and not filing up video time with garbage like others. Love it.

[@JakeBroe]

Thanks Fahd! Cheers!

[@hannahburke4454]

Wow, this was so helpful Jake! I appreciate the walkthrough and thorough explanation.

[@r.arodriquez4392]

Thanks 🙏 you made that so simple. I wish more people could explain like that. This helped a bunch.

[@AbbyOlurinDames]

Thank you!! This is exactly what I was looking for.

[@yvoskanov]

I just got approved for my Schwab Options account. The first thing I did was to look up this video specifically again. Excited to try this out.

[@lancequas]

Nice explanation. This made things click for me more than anything else I've watched so far

[@JakeBroe]

Awesome! Glad you got it Lance!

[@henrymassawe699]

Thanks Jake, your presentation was very informational!!

[@JakeBroe]

Thanks for watching henry! Cheers!

[@carsten7551]

Thank you Jake, this was very helpful!

[@JakeBroe]

You are very welcome Carsten!

[@montezmitchell6805]

Good video bro thanks broke it down just right especially the theta and gamma and all tat

[@Bangpaulxu]

Thank you for this informative vid. I never knew about this and this helped!

[@JakeBroe]

Thanks for watching! Cheers!

[@dweb2275]

Two years later ATT is $16

[@tessjones5987]

Great explanation. Thank you.

[@JakeBroe]

You are very welcome Tess! Cheers!

[@herminrobillard1145]

Hi, thanks for that video... My question in here would be. What is the value of the premium in this case.

[@MrCowardlyKnight]

Switched to schwab, and I appreciate the tutorials.

[@JakeBroe]

You are very welcome CK! Cheers!

[@herminrobillard1145]

Hi Jake. In case that I consider that the Price of 1 contract of an underlying stock like GOOGL is too expensive, can I select a fraction of the share to execute the option? Thank you.

[@exoticsnax7559]

Very helpful!

[@kevink7777]

Jake... love your videos. Question: Does the Schwab system automatically adjust the cost basis of the stock for the amount of the net profit from the covered call ? Just curious if they do that for you, or if that adjustment is something you need to do independently. Thanks, Kevin

[@TRADINGBOXNY]

EXCELENTE EXPLICACION HASTA QUE ENCONTRE UN VIDEO REALMENTE BUENO, MUCHAS GRACIAS, EXITOS!

[@thedot3814]

Hey happy Birthday Jake. It is my Brothers Birthday tomorrow. He would had been 68 years old. Can not wait to see him again.

[@benfrombc]

So, if you think the price will go up more than $30 (ex: in this video ) select on 30 strike Ask on CALLS side correct ? and if keep holding it until near expire date the value (premium) is lower each day because of time decay ,,,? so it better to close it when you expiration far and while profit correct ? am i getting it right ?

[@Allenr661]

Thank you.......

[@Kanephan]

Good stuff! I'd appreciate a similar video on Fidelity's platform. Not sure where to find some of the data you discussed here like the greeks

[@gerardopuac3209]

thank you

[@juanchavez8258]

Great Video

[@greg.ocallaghan]

I'm getting into options now and I have a Schwab account (but I'm not yet authorized to trade options, need to apply). Is there a way to check for realized vol on the platform? You mentioned you "liked" a low vol of 25 when buying the AT&T call, but to evaluate whether that vol is cheap or expensive it's best to compare implied vol vs realized vol. Just wanted to see if you can check for realized vol on Schwab.

[@bigtalk7555]

Thank you

[@ericnazario8486]

Nice!!

[@Cardroid]

very helphul. thanks

[@JakeBroe]

You are very welcome! Cheers!

[@towen3]

thanks!

[@Khimera66]

Question... If you "Buy Call" option.... "T" goes up to say.. $40 and you "Sell to Close" does this mean you never exercised the option? Just sold the option contract forward instead? If so... How much money in theory would get in profit?

[@trumpet9926]

Hello, thank you for your impressive options trading videos. Jake, I need an option coach or mentor to help me improve in my trading.

[@Terika-]

Awesome guiding in how to proceed with this contract. Did u make a video , by any chance, on the ATT follow-up to see how you made out on that call? Thank you for these great videos.

[@JakeBroe]

Hey Terika! In my playlist for my brokerage account challenge, I probably talked more about it, but I don't know which video. I ended up holding the contract for a month and it wasn't moving. I sold to close above my cost basis, but didn't make much on it.

[@MickeyMekhael]

Why not buying call at the price strike 20 with delta 0.85?

[@johnporter5828]

Jake, I've begun forming several retirement portfolios that consist of stocks that are high yielding, monthy, and am writing calls on them when possible. This is the triple dipping strategy. Could you do a video on following such a strategy, and the pitfalls to expect?

[@JMSA460]

Great info

[@JakeBroe]

Thanks JMSA! Cheers!

[@edingerslauson7276]

So u buy puts to protect from a downward spiral and buy calls in case it goes up. Puts guarantees a sell price and calls guarantee a purchase price, right?

[@iinvest8308]

hi Jake, can you do a video on how to roll out a leaps on charles schwab?

[@DavidRodriguez-sh3jy]

Is there a continuation to this video?

[@email6698]

Jake, thank you for this video again, I am watching all your videos, learning call options. However, I was wondering if we select $25 as strike price instead of $30. What will be the outcome on this?

[@MickeyMekhael]

I was thinking tge same but at price strike 20

[@JackDaniels-je7di]

Everytime I try to put in a call or a put it says “This option order cannot be accepted because the quantity entered is greater than the number of contracts held long (including any existing open orders) Please adjust the order so that you do not sell more contracts than are held long in this account.” Can you help me out? I’ve been trying for days and nothing.

[@ihatevideogames3265]

Hello thanks for your video I actually have a Charles Schwab account. I was wondering if you could do a video on selling calls on stocks that you own. I have shares of the stock that unfortunately I bought very high and the price has dropped dramatically is there a way to sell those as a call option?

[@Littlebodega]

Hold

[@JakeBroe]

Hey iHVG! Yep, I made a video on selling covered calls. Might be a good option for you on a stock that has dropped for some extra income! kzbin.info/www/bejne/pae5mo1rhK15nKs

[@BilalkhanYousafzai-wq3yj]

I have question if some one help me … Can you buy and sell same contract in same day …?

[@souvra]

RIP on the at&t play tho

[@junioragudelo8213]

how much profit do you get if it does go up more than $30????

[@bctannng]

Thanks for the thorough explanation, Jake! quick question and it might sound silly. Using your AT&T example above. What if today is the expiration date of June 18 and share price is over $30. How would you collect the premium? Do you have to sell to close or can you take no action and let it run through expiration date to auto collect the premium?

[@JakeBroe]

I always recommend selling to close on or before expiration. If you hold it past market close, then you'll get an e-mail from your broker asking if you want to exercise and then you'll get the 100 shares and have to pay for them. This isn't really ever worth the trouble in my opinion.

[@bctannng]

@@JakeBroe From that email if we chose to not exercise, would we then collect the premiums? Schwab user here. It seems the trouble is that its an added extra step and prolonging the time to collect $. If my read is right, that makes sense. Thanks Jake!

[@planetcave]

Did you get out of it in May @ $32?

[@thehobson2]

So if the price increased by the expiration date and you did not want to exercise the option to buy the stock, would you sell to close as opposed to selling to open? Great video, thank you!

[@hothotheat3000]

Bingo, sell to close and collect your earnings.

[@MrMountain707]

AT&T currently trading at $17

[@billyrbii]

Another great tutorial. Thanks. Did you make money on your T Call?

[@JakeBroe]

Hey Donnie! Thanks for watching. I actually ended up selling it a month later just above my cost basis. It didn't really go up, but I didn't lose any money.

[@billyrbii]

@@JakeBroe just so you know, I’ve watched all your option videos and they have really helped me. I knew almost nothing before I watched your videos and now I trade options every week. Thank you so much for doing these videos! I’ll keep watching.

[@JCao311]

Hey Jake thanks for the video. I am absolute a noob to options trading. So you bought a $30 call for $99, just wondering what if AT&T price shoot up to $40 and you don't have enough capital to exercise the contract? Can you sell your contract before it expires for more than $99(since you bought the contract for $99)? Thanks!

[@airbendnerd]

I'd love a video (sorry if you have already made one like this!) talking about the best credit cards to take with you during the day. For example, one for groceries, one for gas, one for eating out, etc. Kind of like your mobile "kit" for purchases on a regular day. I ask because I'm sticking labels on my cards to help remind me which to use at a particular place (because I can't remember all the bonus percentages). It might be something people would want to see if they can get a good impression of a "build" for what to have in your wallet. Asking both from a civilian and military standpoint. (New subscriber, love your channel!)

[@JakeBroe]

Hey Jing! You are correct! If you don't have the money to exercise a call contract, you can always sell it to someone else and you are more or less getting the profit you would get from the appreciation of the contract (though you don't have the stock). Good questions!

[@seasider7865]

What if you bought deep in the money at $20? Showing last at $8.85 which puts you at $28.85 out of the gates. This would be higher up front cost but gives you a discount market price plus it includes the cost of the contract.

[@JakeBroe]

Hey Sea sider! You definitely can go deeper in the money to lower your break even! But then it requires more capital on your part. It's a balancing act!

[@MickeyMekhael]

So if i have the balance needed for the buy call at 20. Which is better to buy strike at 20 or 30 in that case ? Thanks so much

[@EvilGenius007]

Obligatory - first.

[@JakeBroe]

Haha, you got it EG!

[@thadeusphillips3059]

you have it backwards. Delta is the rate of return.

[@GilbertFleming]

If you lose 100% of your call contract, is that any kind of a tax write off? Can you write off losing $98 against your dividend and interest earnings on your taxes?

[@JakeBroe]

Hey Gilbert! Capital gains offset capital loses and all options trading is capital gains or loses. So if you lost $2,000 on a trade and then made $2,000 on a different trade, then for tax purposes you are still at $0 gains for the year. Unfortunately dividends are treated differently and capital gains loses from trades cannot offset earnings from dividends.

[@joelgarcia5894]

So worst case scenario you would loose $98 or the the value of 100 shares?

[@JakeBroe]

Hey Joel! Worst case scenario is I lose the $98 premium I paid for the contract. If the contract is out of the money, then it is not exercised and I do not buy 100 shares from the other person.

[@expert041429]

I still don't understand. How do you close out. What was your total cost etc.. sounded like a bunch of explaining about things that didn't matter. Once I'm in the money. then what, how to close? what is net liquid. what is cost? explain those things bro

[@dennis899]

I didn't ask for advice on ATT...

[@Leansippa]

he woulda lost

[@theresidetective1646]

so u got screwed by this call contract right? lol atnt sits at 24 now.

[@JakeBroe]

I don't remember when I sold it, but it was way before it announced it was spinning off its Warner Media division. But yeah, it was a bad year for this stock.

[@ynrcas]

this investment didnt end well...

[@BlakeC341]

Lol this aged very badly.

[@boldtaa]

How things have changed over three years.

[@RadioActiveDonats]

23/12/2023 AT&T Inc. 16.55$.....

[@jzac89]

Great stuff. Thanks for doing tutorials on Schwab and also Fidelity. 👍

[@JakeBroe]

Thanks Juan! Cheers!