Syndicate
Buying Options
The buying option, also denominated call, gives the purchaser the right to acquire a security during a determined period of time and at a prefixed price. if after the agreed period the purchase has not taken place, you loose the option. In the buying option, the issuer of the option is compromised to deliver the securities, if the purchaser so decides. When the price of the market is higher than the exercise price the optioner can make some profit; on the contrary, if the exercise price is higher than that of the market , the option has a lack of value for the purchaser.
The two basic strategies in buying options are:
- to buy a buying option (long call): that gives the right to buy in exchange for the premium paid. The purchaser exercises the option when the exercise price is less than the price of the market of the underlying asset. In this case, the benefit will be the same as to the difference between the market price of the asset, less the exercise price and minus the premium paid.
In case that the market price is lower than the exercise price, the purchaser of the option will not exercise the buying option due that it is cheaper to acquire the asset on the market.
Usually, the buying options are acquired by investors that foresee that the market price of the underlying asset will rise during the standing period of the option. - To sell a buying option (short call): in exchange of perceiving the premium you are obliged to sell, if demanded by the buyer of the option.
The buying options are sold by those who foresee that the quotation of the underlying asset will be below the exercise price.