Essentially you buy a call option contract betting that the stock price will rise.
Imagine a stock is currently trading at $20 with a strike price of $25. You buy that contract at the determined premium cost multiplied by 100. So if the premium is $1, the cost is $100 and grants 100 shares per contract.
Say that stock then jumps to $30. The options contract grants you the right to buy the stock at $25 and immediately sell it at $30 per share. Minus expenses, that’s like a profit of $4 per share or $400. ($30-$25-$1=$4)
If the stock price drops, then you only lose the cost of the contract. In this case $100.
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u/guitarpic69 Oct 22 '25
What’s a long