Futures and Options (8)

Options (2)

First, call options.

Let's assume that you buy a call option for $3 premium a share with a strike price of $30 a share for 1,000 shares of XXX Company.

Your option therefore costs you $3,000 ($3 x 1,000 shares).

This means you have bought the right to buy 1,000 XXX shares for $30 a share until the expiry date.

Now, because you own a call option, you want the XXX share price to go higher than $30 so that you will make a profit.

Let's assume that it does go higher, to $40.

Your option price could then soar from $3 to $10.

When this happens, your option is in-the-money, because the share price of $40 is higher than your strike price of $30