📉 Options & Cboe · Lesson 2 of 7 · 10 min
Calls: Leveraged Bets on Growth
📈 A stock goes up 10% and its shareholders are pleased. The person holding a call option on that stock is up 100% and buying a round. Calls turn small moves into big ones — which is exactly why so many of them end up worthless — roughly a third of all contracts expire with zero value. The leverage doesn't care which direction you were hoping for.
💡 Key idea
Buy call = bullish, capped loss (premium paid), uncapped upside. Every day that passes costs you theta.
🧠 Why it matters
When you BUY a call: pay a premium, get the right to buy 100 shares at the strike price before expiration. Profit when stock rises above strike + premium paid. Maximum loss = the premium you paid. Maximum gain = unlimited (theoretically). Time decay (theta) erodes value every day.
🌍 In the real world
📊 Apple at $150. You buy a $160 call expiring in 30 days for $3 per share ($300 per contract). Apple surges to $175. Option worth $15+ intrinsic value alone. Your $300 is now worth $1,500 — a $1,200 profit, 5x your money. Apple stays at $150: your $300 expires worthless. That's the trade-off.
📌 Takeaways
- In-the-money: stock above strike for calls
- Theta: time decay erodes option value daily
- Buy calls when you expect fast, significant upward moves
📖 Terms in this lesson
Call option: The right to buy at a set price; a bet the price goes up.
✅ Test yourself
You buy a $50 call on a $48 stock. The call is:
- In-the-money
- Out-of-the-money (stock below strike)
- At-the-money
- Already expired
Answer: B · Out-of-the-money (stock below strike)
Out-of-the-money: the stock is BELOW the call's strike price ($48 < $50). The option has no intrinsic value yet — only time value.
What is 'theta' in options?
- The stock's direction
- Time decay — the option loses value every day even if the stock doesn't move
- Implied volatility
- The strike price
Answer: B · Time decay — the option loses value every day even if the stock doesn't move
Theta measures how much value an option loses each day from time passing alone. Options are wasting assets — the clock is always working against buyers.
Your call option expires worthless. Your maximum loss is:
- The entire stock value
- Unlimited
- The premium you paid
- Strike price × 100
Answer: C · The premium you paid
Call buyers' max loss is capped at the premium paid. This is what makes buying options far safer than selling them NAKED (uncovered), where losses can be unlimited.
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