Why Do Traders Opt Call Option

Why Do Traders Opt Call Option

When you buy the call option, you receive a contract which entitles you the right to purchase the underlying financial instrument or a commodity like stocks at a pre-determined price known as the strike price. For the call option, you have to pay a fee which is commonly called as premium.  You can exercise the right to purchase till the expiry of the option.  You can also look at buying digital currencies through the call option.  However, there are only a few exchanges which allow this facility for the digital currency. Or else you can directly buy and sell them through crypto CFD trader, the most popular trading platform now available. Read the full review here given by the users.

Benefits of going for a call option

Limited risk- Call options are considered as high-risk investments.  If the underlying security’s price does not increase above the strike price, then the option expires.  You will lose the money you have put up.  But the premium amount is your limit risk.  You will only lose the premium amount and the risk is always limited to that amount.

Leverage- The premium charged by the call option is very much less than the underlying security value.  Hence, the resulting leverage will increase your potential for the investment return.  For instance, you buy the shares of a company at 30 dollars for each share and then the share is getting sold at 33 dollars after a few weeks.  When you sell them, you will get a profit of 3 dollars for each share. Suppose you had bought the shares with the call option with the 30 dollars as strike price with 1.50 dollars as premium. Whenever the price reaches 33 dollars, you can exercise your right to purchase the share at 30 dollars and resell it for 33 dollars. You make a profit of 3 dollars minus the premium price. But this is a guaranteed 100% profit.

Flexibility- By opting for call options, it lets the trader employ various risk-reducing and income-enhancing strategies using different combinations of underlying security and options. For instance, consider the bull call spread strategy. In this strategy, you take up 2 call options, one with a strike price close to the market price and at the same time another call option with the higher strike price. The premium which you collect for one will offset the other.  The profits you gain by one will offset the loss made by the other.