Stock XYZ is at $100. You buy a $105 Call for $2. If XYZ hits $110, your option is worth at least $5. You turned $2 into $5 (a 150% gain), while the stock only moved 10%. 3. Selling Call Options (Bearish/Neutral)
Note: Only sell "Covered Calls" (where you already own the shares) to limit risk. Selling "Naked Calls" has infinite risk and is not recommended for beginners. Limited to the premium received. 4. Key Terms to Know
The stock stays below the strike price. You keep the entire premium as profit.
If the stock skyrockets, you are obligated to sell the shares at the strike price, missing out on all gains above that level.
You don't have to wait for expiration. You can "sell to close" a bought call or "buy to close" a sold call at any time to lock in profits or cut losses.
Stock XYZ is at $100. You buy a $105 Call for $2. If XYZ hits $110, your option is worth at least $5. You turned $2 into $5 (a 150% gain), while the stock only moved 10%. 3. Selling Call Options (Bearish/Neutral)
Note: Only sell "Covered Calls" (where you already own the shares) to limit risk. Selling "Naked Calls" has infinite risk and is not recommended for beginners. Limited to the premium received. 4. Key Terms to Know
The stock stays below the strike price. You keep the entire premium as profit.
If the stock skyrockets, you are obligated to sell the shares at the strike price, missing out on all gains above that level.
You don't have to wait for expiration. You can "sell to close" a bought call or "buy to close" a sold call at any time to lock in profits or cut losses.
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