When a trader buys a call option contract, they buy the chance to own shares they bought at the strike price on or before the expiration date. The contract gives them the right to take that chance if they want, or to let the contract expire. For most option traders, however, their goal is to benefit from the change in value of the option itself. Let’s take a closer look at how that happens.

Suppose a trader buys a call option on XYZ stock with a strike price of $100 dollars. Let’s also suppose that at the time of purchase, the option has 30 days left until it expires. The setup might look something like this: 

At the moment this chart depicts, the 100 call option contract can be purchased for a price of $2.00 per share. This implies that the trader would spend $200 dollars to buy the contract because the contract includes the chance to buy 100 shares. Having the opportunity to buy the stock at a higher price than it is trading right now might not seem like a very interesting proposal, but that’s often how option traders operate. They look for a stock they think has an opportunity to move significantly higher within the option contract’s window of time.

They hope to see the stock make a big move in their favor. Imagine if the stock moved more than eight dollars higher in two weeks. If that scenario played out, the option buyer now has the chance to buy XYZ at $100, even though the stock is worth $108. If the option buyer wanted to exercise their right to buy the stock at $100, they could do so. 

If they exercised their right, they’d pay $10,000 to acquire the shares which are now worth $10,800. They spent $200 to buy the option which means they have a $600 net gain on the trade.

However, most option traders don’t operate this way. Most option buyers instead choose to sell the option back into the market. . They can sell their option anytime until the market closes on the date of expiration. 

When a trader buys a call option contract, they buy the chance to own shares they bought at the strike price on or before the expiration date. The contract gives them the right to take that chance if they want, or to let the contract expire. For most option traders, however, their goal is to benefit from the change in value of the option itself. Let’s take a closer look at how that happens.

Suppose a trader buys a call option on XYZ stock with a strike price of $100 dollars. Let’s also suppose that at the time of purchase, the option has 30 days left until it expires. The setup might look something like this: 

At the moment this chart depicts, the 100 call option contract can be purchased for a price of $2.00 per share. This implies that the trader would spend $200 dollars to buy the contract because the contract includes the chance to buy 100 shares. Having the opportunity to buy the stock at a higher price than it is trading right now might not seem like a very interesting proposal, but that’s often how option traders operate. They look for a stock they think has an opportunity to move significantly higher within the option contract’s window of time.

They hope to see the stock make a big move in their favor. Imagine if the stock moved more than eight dollars higher in two weeks. If that scenario played out, the option buyer now has the chance to buy XYZ at $100, even though the stock is worth $108. If the option buyer wanted to exercise their right to buy the stock at $100, they could do so. 

If they exercised their right, they’d pay $10,000 to acquire the shares which are now worth $10,800. They spent $200 to buy the option which means they have a $600 net gain on the trade.

However, most option traders don’t operate this way. Most option buyers instead choose to sell the option back into the market. . They can sell their option anytime until the market closes on the date of expiration.