Best Forex Trading System

For example, Alan and Tom agreed on a call options covenant where Alan will buy from Tom, 100 shares (equivalent to one option) of company Xyz at which will expire on the third Friday of September. We call the as strike price. Currently the price of stock Xyz is . He bought the choice for . This is called the choice Premium.

At the expiry date or also called maturity date, the share price of company Xyz remains at . Alan can practice his right to buy the share for and make profit. If the share price goes down to , Alan can still profit by simply exercising his rights.

However, if stock Xyz price goes down below on the maturity date, for example drop to . The choice will be too costly for Alan so he can ignore the contract. If he wants to buy the stock, he can just buy it from the market. He don't need to practice the option. In this case, Alan will only lose the number he paid for the covenant which is . Tom, on the other hand will keep the stock and the premium, which is his profit.

A long call is a bullish strategy. Trader will enter the position if he thinks the price will go up. This is a basic strategy and the most base choise for choice trader beginner.

With long call, your loss will be exiguous to the superior paid up front for the option, and your gain will be unlimited depends on how much the stock rallies.