Well, now that you know how to buy and close an Call Option and how Options derive their value from stocks, now is time for the BIG question: When do I MAKE MONEY???

Very simple. Basically, when you buy a Call Option, you are feeling bullish about the underlying stock and thinks that the stock price will rise in the near future. Let’s say you bought a GOOG 530 Jun Call Option at $4.40, which is the ask price (as in this example). Let’s assume the commission for opening that trade is $10 per Option contract. You will break even when the bid price of the GOOG 530 Jun Call Option rise to $4.50. Anything above that will be your profits. If the bid price rose to $5, you would have made ($5-$4.50) X 100 X 1 = $50.

Recall that each Option contract control 100 stocks by default. For the bid and ask prices you see, you need to multiply them by 100 and by the number of contracts involved to get the actual price that you need to pay or collect.

This is a mouthful for today. Let’s try to digest this first.

Popularity: 6% [?]