Buying Call Options Explained - How to Trade Options

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What Is a Call Option?
Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period. The stock, bond, or commodity is called the underlying asset. A call buyer profits when the underlying asset increases in price.
A call option may be contrasted with a put, which gives the holder the right to sell the underlying asset at a specified price on or before expiration.
The Basics of Call Options
For options on stocks, call options give the holder the right to buy 100 shares of a company at a specific price, known as the strike price, up until a specified date, known as the expiration date.
For example, a single call option contract may give a holder the right to buy 100 shares of Apple stock at $100 up until the expiry date in three months. There are many expiration dates and strike prices for traders to choose from. As the value of Apple stock goes up, the price of the option contract goes up, and vice versa. The call option buyer may hold the contract until the expiration date, at which point they can take delivery of the 100 shares of stock or sell the options contract at any point before the expiration date at the market price of the contract at that time.
The market price of the call option is called the premium. It is the price paid for the rights that the call option provides. If at expiry the underlying asset is below the strike price, the call buyer loses the premium paid. This is the maximum loss.
If the underlying's price is above the strike price at expiry, the profit is the current stock price, minus the strike price and the premium. This is then multiplied by how many shares the option buyer controls.
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#OptionsTrading #BuyingOptions #CallOptions
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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

[@lukl15]

I just comment so that the algorithm knows that it’s good! ;) Thanks Jake, appreciate your work and knowledge.

[@JakeBroe]

Thanks lukl15! I appreciate that help with the algorithm like always!!

[@walterclark3274]

That was a good intro Jake. Looking forward to the theta decay lesson. I just got into options last yr and have done well. To be honest, it was most ly long-term equity anticipation securities (LEAPS) call options. I just felt that it was less risky, and I chose companies that I would have invested long-term with anyway. I have never exercised a call yet. I have contemplated exercising my NIO calls that expire in 4 days. I am deep in the money and am bullish long-term, but my research usually leads to people mostly discouraging it. I’m sure you will be discussing this in the future. I need to learn all of the other options, and I feel that you do a great job of explaining these principles. Strong work brother!

[@JakeBroe]

Yep! There is so much to talk about with Trading Options, it is overloading. I'm probably going to have a playlist of 20+ videos on the topic by this summer. They will be published alternating with my Schwab Challenge and other investing topic ideas. More coming soon!

[@dainguyen3630]

You’ve explained very well and easy to understand, thank you

[@aisforairborne]

Best explanation I have seen. Thank you.

[@jungheekim886]

Jake , Thank you so much for amazing information! I always wanted to know about Call opinions. Thank you

[@JakeBroe]

You are welcome Junghee! Video on buying puts goes up today!

[@rhythmsaidha]

Tanks Jake, another great video in the 'Option series' :)

[@JakeBroe]

Thanks for watching Rhythm! More options videos coming soon!

[@ericnazario8486]

Great video Jake!

[@isaacgodkin5900]

Finally a video we can understand without the mumble jumble vocab. Im a visual guy! Is there any way, Jake to have and access your visual slides? Thanks for simplifying Option calls & puts. Im still learning but this helps!

[@eyal7786]

Thank you for this Informative video!

[@That_Cyber_Dude]

Good job Jake!!!

[@JakeBroe]

Thanks Frank! Cheers!

[@khafreahmose8768]

Ur tha man Jake!!!

[@otboakye]

Joe, difference between buying calls or selling puts. Still can’t wrap my mind around it. Generally assuming you will make money- which one makes the most money all things being equal (when in a profitable trade)?

[@alphabeta01]

Jake, nice video. There is a point you need to let the viewers know. You get to exercise SBX option to purchase 100 shares @100 only if the option on the exercise date is at $10. If the Call option is greater than $10 when SBUX is at $110, then you are not allowed to exercise the call option by the Broker. What you can only do is to close your call option and pocket the profit from $6.65 to for e.g. $10.5. And then purchase SBUX at $110. Hope this helps.

[@candlesbypurplerose1010]

I just want to get premiums to increase my cash flow. I want to keep my stock and not have my stock called away. That being the case- are their rules or strategies to do this? Thank you

[@Layla-qf3rf]

Hi awesome video, very informative! Question, if I have a trade expired this Friday and now I’m down a lot, does the trade automatically canceled once go to zero before Friday?! Please help, I’m a newbie..

[@JakeBroe]

Hey Layla! If you bought a call option and it will expire worthless out of the money on Friday, then it just disappears. You don't have to do anything. You officially lost what you paid for the call contract when you bought it.

[@elijah8654]

Hi Jake! What tool are you using to view the stock data at 1:45? It look super concise and easy to read. I'm a new subscriber and I'm loving the videos so far!

[@seancarpenter5692]

Question, say the option goes in your favor and you are in the green on expiration date. Then what do you do? Do you have to have enough money in your account to buy those 100 shares at the agreed upon price? or can you just sell them to someone else immediately for a profit so you don't have to use your own money to buy them? And in order to exercise the contract, is there a button you have to press? or will your platform automatically exercise it if you are in the green? Thanks!

[@mikatu]

an option is not a toy, of course you need to exercise the stuff and no platform will make trades for you!

[@mallikharjunaraobheemavara3727]

Thanks Jake, Please do a video on Buy Call

[@JakeBroe]

I will make more options trading videos and do specific examples in the future. Cheers!

[@NoOne-xy6iz]

Thank you for this series! I've been with Schwab for a couple of months now and have no idea how to trade options, so I find these very helpful. They approved me for level 0. A video on the differences between the levels will be great! Thanks for all the help!

[@JakeBroe]

Thanks No One! I am going to keep uploading 1-2 new videos on options trading every week. Be sure to check back!

[@NoOne-xy6iz]

@@JakeBroe Sweet!

[@svenwinkler5652]

i have 2700 shares of PLTR of an average price of $29.07 trading on 40% margin, can you help me out what strategies would you implement? can you make video on that stock. Your video channel is awesome thanks man

[@franciscovargas1131]

Great videos Fidelity has made it very easy to sell options. Calls and Puts are not ideal for me put like learning about them.

[@JakeBroe]

Awesome! Thanks for watching Francisco!

[@appalachianleafer]

Thanks

[@4acul]

Hi Jake, thank you for your videos, I really enjoy them as you are very clear when you explain concepts. I have a question: let's say that you were right in buying a call option and you want to exercise the contract; do you need to have the actual funds in your account to buy the 100 shares of the stock at the strike price and re-sell at the market price in order to make a profit, or is it something that happens automatically (without buying and sell) and you just exercise the contract and get the profit in your account? Thank you in advance

[@JakeBroe]

Hey Luca! If you don't have the funds in your account to buy the stock in your contract, then you need to "sell to close" your call option contract. Just go back to the option chain and sell to close that exact same contract, and you will be paid nearly what it is worth. This prevents you from having to exercise the contract and actually buy the stock from the other person. Since you are close to expiration, it is all the intrinsic value you would gain anyways when the contract exercises. If you don't have the funds, then your broker might not be able to exercise it for you.

[@StanHasselback]

Excellent explanation of a difficult concept. This part of an overall strategy right?

[@JakeBroe]

Hey Stan! I am just trying to make the basic videos to understand the concepts. We will talk about strategies more in future videos!

[@Scootah95]

Let me ask this... Are we not able to purchase the contract, and instead of exercising and purchasing at a lower price, can't we just sell the contract at the new market value? Or is that not a thing? That Is what I am confused on. To further explain...let's say hypothetically i buy a call option for nvidia and pay the premium..then Nvidia goes WAY up... what if i don't have the funds to purchase Nvidia for 475 [strike price] despite it being lower than market price....can't I just sell the contract for market value without ever needing to hold the shares or excercise my right to buy them?

[@zw8682]

Is it a good idea to buy contracts against the market trend. When a stock goes up, the put option usually drops a lot. When a stock goes down, the call options goes up then. But the trend could be totally different in a one or two weeks.

[@JakeBroe]

Haha, the market is unpredictable. It's all just theory and speculation. No way to guarantee anything.

[@renegadevida011]

Okay so I'm new to options, and I'm really trying to understand something. Why would someone buy a call option, INSTEAD of just setting an alert for when stock reaches a certain price, so that they can then just jump into the market and buy it at that price? Are calls beneficial because the market moves so quickly, and you might lose the chance to buy the stock at a given price, so instead you pay a premium for a call? I'm so confused on how this is beneficial at all unless you just want to let your money sit, and not pay attention to the market.

[@paraglidersean2698]

Say you have $10,000 to trade. If a stock is $100, you can buy 100 shares. If the option is $2, you can buy 5000 shares.

[@scotthenderson4376]

I'm just starting but I haven't seen a single call I ran thru the calculator that actually has 50% chance of success there at most 40%. With this probability how are calls superposed to be so good

[@peternguyen1960]

hi Jake, nice video. Can you make a video on the strategy to buy option ? which price I should buy and when to cut losses ? so far I know the minimum risk to buy option is to buy both put and call at the same time (straddle/strangle) because if you buy only a call option, your chance of winning is 1/3 or 33.33%. There are many guidance from the book and other channels (I barely understand them), but somehow I like your tutorial best. You are a pretty good teacher.

[@JakeBroe]

Thanks Peter! I have a couple more options trading videos coming covering all the conceptual basics. But then we will get in to trading strategies and I'll do some real world examples. Cheers!

[@peternguyen1960]

@@JakeBroe excellent. I am looking forward to watching them. Let's make money together ! I believe many followers here (including me) will follow your live trading examples.

[@lilinebedell9451]

What's the difference between market order and limits order

[@JakeBroe]

Market orders execute the sale immediately and your broker tries to give you the best price when meeting another buyer/seller. With a limit order, you set the price, and someone else has to meet you at that price or else it does not execute. This video explains it more in detail: kzbin.info/www/bejne/rYSblKiEbLmJo9U

[@TheOriginalPickleRick]

I bought a SOFI $8 call option. The contract expired at $8.36 so I was expecting to be assigned 100 SOFI shares at $8 each. But my account shows 100 shares at $9.016 each. Don't understand why !

[@Drizz1717]

Nice

[@TheAndrewLopezFinancePodcast]

Of course Starbucks stock will continue to go up! STONKS only go up Jake!

[@JakeBroe]

Haha, if STONKS only go up, then people shouldn't buy put contracts or sell call contracts, lol

[@utubedaveg]

Been selling puts and covered calls since summer of 2020. I just bought my first call contract for jan 22 expiration and I'm up some. My question is not related to anything you covered as I am well versed on that. My problem is strategies after the trade. do you have any videos of that. Thanks. I enjoy your videos.

[@DreaminBig]

I’m looking to buy NIO for $7.50 I want to do 5 contracts. Expiration date set to the end of the year. So you’re saying that if the stock goes up to, let’s say, $50 before the contract expires a few months from now. I can then buy the stock at $7.50? Then resale for $50 ? that’s insane and awesome if that’s the case.

[@raymondayala5355]

Yes but the contracts that far out will carry a heftier premium. So you’ll have to multiply the premium by 500 since each contract is 100 shares. So if each contract is $2 that’s $2x100=$200 x 5 = $1000 for 5 contracts.

[@DreaminBig]

@@raymondayala5355 yup just looked at the options chain. I’m looking at a $930 premium fee. it’s a lot of money but I’ll rather potentially loose $930 than to go all in now and the stock drops a few dollars .

[@DreaminBig]

@@raymondayala5355 I’ve lost a lot more money with lucid already. I prematurely went into the stock without much knowledge when it was at around 50. I’ve brought my average cost down to $13, but I wish I knew more about how options worked back in those days. I also failed to do research. From what I’ve seen this far. Is most companies that go public. Initially start with a high stock price and go down tremendously. Nikola, rivian, and lucid come to mind.

[@jolietia]

Do you have to apply in order to invest in options no matter the platform?

[@XxXK9]

You have to apply for it and also have a decent amount of money in your brokerage account either in stock or cash.

[@sjn7220]

I more or less understand this but it seems like too much work to make a little bit extra for the average investor. I’ll stick to my buy and hold strategy. It has served me well.

[@JakeBroe]

Most people would agree with the sjn! Cheers!

[@mikatu]

He didn't explain correctly the concept. The calls are not toys to gamble, it is a risk hedging tool. You buy a stock and you want to limit your losses, you can sell a call to ensure you can sell them at a certain price in the future, for example and if not exercised you make some profits and retain the stock. The way these KZbinrs explain you these concepts is all about gambling and they never really explain what is the intended purpose of the tools.

[@behrensf84]

Looks like a better deal for the seller. If the stock price goes up, I get what you paid me plus the original price of the stock, which I was going to sell anyway. If it goes down, I get paid for nothing, and I still have the stock... how can I be a stock seller?

[@JakeBroe]

Haha, you got it figured out Felipe!

[@alanyoung159]

I dont think I get it. If the price of the stock goes down, and assume the buyer of the option doesnt execute the option, as the seller, dont you still get their premium and also get to keep the stock?

[@chrisvinci5417]

As a intermediate investor with some option experience I'd recommend people stay away from buying call options as you will mostly certainly lose 100%. However buying puts has value to hedge your portfolio should you have a negative future outlook and you don't want to liquidate your portfolio and pay taxes. Writing options is the best way to go as you get to keep the fools money.

[@JakeBroe]

I agree chris! I will talk more about this topic in my video coming next Thursday. Cheers!

[@stoneyj1a1]

Just tell us how calls work. Like wtf is all this

[@miatory6784]

Hi Jake Broe, I was wondering does the US mass media sell stock? Are they "controlled" at any limit by their shareholders? Are "shareholders" the same thing as "board of trustees"? Are any "news" outlets publically owned, like the Packers? Even the the New York Stock Exchange and Wall Street is in New York: are investors international? How do you get "insider trading knowledge" if you're a private business, not just high ranking military officials, or contractors, for example? What's the difference between a stock, dividend, or share? Are the businesses or people with the most of the most successful stocks, the same thing as political lobbyists? How has KZbin, for example, changed the game, at all, for getting "real" news or "broader" news out to the masses? How does google work? Is it a business or the government? How does google search results, pop ups, you tube videos, google, yahoo, news "results" work? I used to work for a contractor of google that sold spots to people to be in the "top" spots of google search results. They advised us to target primarily on cold calling real estate agents, but, they said it was because real estate agents phone numbers are easy to find. After all, real estate agents, for example, want to market themselves, so they put themselves out there. Similarly, real estate developments are the "homes" of everything, cities, business, government, residences, gas stations, news stations, manufacturing, car sales lots, schools, hospitals, stock brokers offices, etc. So, the use of real estate is at the top necessity too. If the US media says the same thing on every cable station and a 11000 you tube videos say the same thing, what's the point? If, for example, they all say, racist, antisemitic, dumbing down and devisive stuff that is no where close to accurate, and if it's being said to self-destruct it's own local audiences, what is the deal? Do foreign nations actually benefit from news outlets that say, preach about foreign terrorists being to blame for violence here and in the middle east, for example? Why would other nations and the US tolerate relentless broadcasts that don't allign with the US constitutional values? Why has another Hollywood not taken off to anything close to the same degree elsewhere, like the song by the Red Hot Chili Peppers, Californication? Is English the "best" or "easiest" language? That's a lot of questions lol.