Call options provide the right, but not the obligation, to buy a particular underlying asset, such as stocks, at a certain price within a specified period. Here are some ways to make money with call options:
- Buy call options: Investors can buy call options to benefit from the price increase of the underlying asset. If the stock price goes up, the option buyer can exercise the option to purchase the stock at a lower price, and then sell it at a higher price in the market.
- Sell call options: Option sellers receive a premium for writing the option, which can generate income. If the stock price does not increase, the option seller can keep the premium as profit. If the stock price goes up, the option seller is obligated to sell the stock at the strike price, which may result in a loss if the market price is higher than the strike price.
- Covered call strategy: Investors who own the underlying stock can sell call options to generate additional income. This strategy involves selling call options at a strike price above the market price of the stock, which means the option is less likely to be exercised. If the option is not exercised, the investor can keep the premium as profit. If the option is exercised, the investor can sell the stock at the strike price, which may be lower than the market price, but still generate profit due to the premium received.
- Diagonal call spread: This strategy involves buying a longer-term call option with a higher strike price and selling a shorter-term call option with a lower strike price. The goal is to generate income from the premium difference between the two options, while also benefiting from potential price increases in the underlying asset.
- Bull call spread: This strategy involves buying a call option at a lower strike price and selling a call option at a higher strike price. This can limit the potential profit, but also limits the potential loss if the stock price does not increase as expected.