Call Option

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Sometimes people have a long put position they own puts and they say they are short. But in fact the security they really own is the put option. For them to make a profit, meaning of short call option put option must increase in price, so they meaning of short call option sell it for a higher price than for which they have bought it. They are long the put option. When you buy and own a put option, you have a long put position.

But being a different thing, your directional bias concerning meaning of short call option underlying is bearish, as the option you own increases in price when the underlying stock falls. When you buy and own a call option, you have a long call position.

Your directional bias concerning the underlying is bullish, as the option you own increases in price when the price of the underlying stock rises.

When you sell a call option with the intention to buy it back later for a lower price, you have a short call position. Your directional bias concerning the underlying stock is bearish, as meaning of short call option underlying stock going down makes the option you want to buy back cheaper, which makes you a profit. When you sell a put option with the intention to buy it back later for a lower price, you have a short put position. Your directional bias concerning the underlying is bullish, as the underlying stock going up makes the option you want to buy back cheaper, which makes you a profit.

Of the four basic option positions, long call and short put are bullish trades, while long put and short call are meaning of short call option trades. Whenever you buy and own something, you are long.

You want the security you have bought to increase in price, so you can sell it later for a higher price and make a profit. Whenever you sell something and hope you will later buy it back for a lower price, you are short. The deciding factor for the long vs. It is useful to get familiar with the right terminology as early as possible. Assuming that you want to learn as much about options as possible in order to become competitive and survive in the markets, you will probably encounter other materials and books about options.

Knowing what all the basic terms mean will be necessary for you to understand what it is all about. For example, when dealing with option spreads and more complicated combinations of option positions, you will see terms like bull call spreadbear call spreador bull put spreadwhich all sound similar, but as you might expect they have significant differences critical for your profit and loss. You might even meaning of short call option to a situation when your online trading platform breaks down and you will have to call your broker in order to quickly close or adjust some of your positions.

In such cases, mistakes in communication which might arise from using the wrong terms might cost you a lot of money. If you don't agree with any part of this Agreement, please leave the website now.

All information is for educational purposes only and may be inaccurate, incomplete, outdated or plain wrong. Macroption is not liable for any damages resulting from using the content. No financial, investment or trading advice is given at any time. Home Calculators Tutorials About Contact. Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4. Terminology of Option Positions.

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When running this strategy, you want the call you sell to expire worthless. This strategy has a low profit potential if the stock remains below strike A at expiration, but unlimited potential risk if the stock goes up. The reason some traders run this strategy is that there is a high probability for success when selling very out-of-the-money options.

If the market moves against you, then you must have a stop-loss plan in place. Keep a watchful eye on this strategy as it unfolds. You may wish to consider ensuring that strike A is around one standard deviation out-of-the-money at initiation. That will increase your probability of success.

However, the higher the strike price, the lower the premium received from this strategy. Some investors may wish to run this strategy using index options rather than options on individual stocks. It is not a strategy for the faint of heart. As long as the stock price is at or below strike A at expiration, you make your maximum profit. Risk is theoretically unlimited. If the stock keeps rising, you keep losing money. You may lose some hair as well. The premium received from establishing the short call may be applied to the initial margin requirement.

After this position is established, an ongoing maintenance margin requirement may apply. That means depending on how the underlying performs, an increase or decrease in the required margin is possible.

Keep in mind this requirement is subject to change and is on a per-contract basis. For this strategy, time decay is your friend. You want the price of the option you sold to approach zero. That means if you choose to close your position prior to expiration, it will be less expensive to buy it back.

After the strategy is established, you want implied volatility to decrease. That will decrease the price of the option you sold, so if you choose to close your position prior to expiration it will be less expensive to do so. Options involve risk and are not suitable for all investors. For more information, please review the Characteristics and Risks of Standardized Options brochure before you begin trading options.

Options investors may lose the entire amount of their investment in a relatively short period of time. Multiple leg options strategies involve additional risks , and may result in complex tax treatments. Please consult a tax professional prior to implementing these strategies. Implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or the probability of reaching a specific price point.

The Greeks represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract. There is no guarantee that the forecasts of implied volatility or the Greeks will be correct.

Ally Invest provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. System response and access times may vary due to market conditions, system performance, and other factors.

Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results and are not guarantees of future results.

All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. The Options Playbook Featuring 40 options strategies for bulls, bears, rookies, all-stars and everyone in between.

The Strategy Selling the call obligates you to sell stock at strike price A if the option is assigned. Options Guy's Tips You may wish to consider ensuring that strike A is around one standard deviation out-of-the-money at initiation. Break-even at Expiration Strike A plus the premium received for the call. Maximum Potential Profit Potential profit is limited to the premium received for selling the call. If the stock keeps rising above strike A, you keep losing money. Maximum Potential Loss Risk is theoretically unlimited.

Ally Invest Margin Requirement Margin requirement is the greater of the following: As Time Goes By For this strategy, time decay is your friend. Implied Volatility After the strategy is established, you want implied volatility to decrease. Use the Probability Calculator to verify that the call you sell is about one standard deviation out-of-the-money. Use the Technical Analysis Tool to look for bearish indicators.