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Options by Michael C Thomsett

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Chapter 4 Buying Calls: Maximizing the Rosy View

More are taken in by hope than by cunning.

̶̶ Luc de Clapiers, Reflections and Maxims, ca. 1747

Option buyers have to be optimists. They believe a stock’s price will move enough points, in the right direction, and within a limited time, to produce a profit. If they are right, their return on investment can be huge. If they are wrong, they are 100 percent wrong.

When you embark on a program of buying calls, you take the most speculative position that is possible with options. Since time works against you, substantial change in the underlying stock often is required in order to produce a profit. A call grants to the buyer the right to purchase 100 shares of the underlying stock, at an established ...

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