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Equity Options: The Power of the Call Option

Using Equity Options to Reap Massive Gains

 Equity OptionsEquity options are a clever way to attain stocks at better rates than you can find through direct purchase. Equities come in the form of calls and puts. Calls enable the investor to fix a set price on a stock. Using this technique can lead to dramatic savings on stock price and high returns.

If a stock is selling at $10 per share, you could buy 100 shares for $1,000. With equity options, you can set a call option at $5 with a strike price of $50 and buy 100 shares at half the cost of direct purchase. The investor retains the ability to buy stocks at the diminished rate for the duration of the put option’s life.

If it sounds too good to be true that is because there are risks. Using call options can allow you to buy a larger number of stocks for the same price of outright purchase, and this can pay off in spades on a rising stocks with good returns. On the flip side, if the stock value drops, the investor can lose substantially more than they would at outright prices.

Equity Options Is a Gamble

It is a gamble, but the investor is always aware of the potential losses, unlike other stock options with unlimited risk. Call options should be reserved for stocks with high investor confidence.

Using call options and strike prices is known as leverage. Even though the losses can reach double, triple or more of the loss at outright purchase, the potential to gain is high. If the stock rises up to or above the strike price, gains can be very high.

Many investors consider call options to be a viable tool to gain quick money. When confidence in a stock is high and a rise in value seems imminent, call options can be employed to reap the benefits of a rapid rise in stock price.

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