Introduction
Call options are a powerful tool for investors looking to capitalize on the potential price movements of underlying assets, like stocks. In essence, a call option grants the holder the right, but not the obligation, to purchase a specific asset at a predetermined price (known as the strike price) before a certain date (the expiration date).
Imagine you're optimistic about the future performance of a particular stock, let's say "Tech Company XYZ." Instead of buying the stock outright, you could purchase a call option. This option would give you the right to buy shares of Tech Company XYZ at a set price, even if the market price soars higher. If the stock price rises above the strike price, you can exercise your option and buy the shares at the lower, predetermined price, profiting from the difference. However, if the stock price drops, you're not obligated to buy the shares, and your maximum loss is limited to the premium paid for the option.
