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1. Premium: This is the price you pay to purchase the call option. It’s essentially the cost of having the right to buy the asset at the strike price.
2. Strike Price: The predetermined price at which the buyer can purchase the underlying asset.
3. Expiration Date: The date by which the option must be exercised. After this date, the option expires worthless if not exercised.
4. In-the-Money (ITM): When the current price of the underlying asset is above the strike price. This means the option has intrinsic value.
5. Out-of-the-Money (OTM): When the current price of the underlying asset is below the strike price. These options have no intrinsic value but may still have time value.
6. Exercising the Option: If the buyer decides to purchase the underlying asset at the strike price, they are “exercising” the option.
7. Profit Potential: The buyer of a call option profits if the price of the underlying asset rises above the strike price plus the premium paid. The seller profits from the premium if the option expires worthless.
8. Risk: The maximum loss for the buyer is the premium paid for the option. For the seller, the risk can be unlimited if the price of the underlying asset rises significantly.
Call options can be used for various strategies, including speculation, hedging, and generating income. For example, an investor might buy call options if they believe a stock’s price will rise, allowing them to purchase the stock at a lower price and sell it at the market price for a profit
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