Options Insight: Top FAQs for Clarity in Trading
What is a Long Call?
An option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific time period.
A call option gives the right to buy
the asset, while a put option gives the right to sell it.
Here's an example to illustrate a call option:
Suppose today someone offers you a deal allowing you to buy 100 shares of TUTU stock at $110 per share any time up to March 1 (three months from now).
In return, you need to pay $9 per share upfront.
If you ultimately decide not to buy the underlying shares, this $9 is non-refundable.
Believing that TUTU's stock might reach $130 or higher by then, you find this deal worthwhile.
Thus, a call option contract is created.
Option Buyer (Option Holder):
You pay $900 ($9 * 100) to acquire the right to buy 100 shares of TUTU at $110 per share any day before or on March 1.
You may exercise this right or not, but the $900 you paid will not be refunded.
Option Seller (Option Writer):
The seller receives the $900 you paid and bears the corresponding obligation.
If you decide to buy 100 shares at $110 per share at any time up to and including March 1, the seller must provide the shares and cannot refuse.
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