Chapter 6: Buying options: the scenarios
In this chapter we will look at the different scenarios that are possible when buying either a put option or a call option.
At the end of this chapter you should have a good understanding of how changes in price of the underlying stock will affect the value of your option and what alternative courses of action you can take based on this price movement.
When buying options you are speculating that the market price of the underlying stock will move in your direction by a large enough amount to generate a profit on your option. If you are right, your percentage returns are significant. However, if you are wrong, you can potentially lose the entire premium you paid for the option.
The actions ...