How a call option works. Options contracts are essentially the price probabilities of future events. The more likely something is to occur, the more expensive an option would be that profits from that event. This is the key to understanding the relative value of options. Let's take as a generic example a call option on International Business Machines.

How a call option works

Options Trading for Beginners

How a call option works. You can think of a call option as a bet that the underlying asset is going to rise in value. The following example illustrates how a call option trade works. Assume that you think XYZ stock in the above figure is going to trade above $30 per share by the expiration date, the third Friday of the month. So you buy a $30 call option.

How a call option works

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