I've never used options before, but I would like to give it a try. The first thing I want to do is understand as much about call options before moving on to the more difficult, in my opinion, put options.
What I understand so far is that you can buy a call option which give you the "option" to buy 100 shares at a specific price. As the share price moves, the option price moves too.
As an example, let's say I buy one call option of ABC for $1 at a strike price of $100. Its expiration is in 30 days and the price is currently hovering at $90. Let's also say that 2 days before the expiration the stock is at $105. How can I profit from this with minimal risk? I think my options are:
- Sell the option. If I use this method and the stock continues to rise, won't I be on the hook to buy the stock and give it to the option buyer? In theory it could negate my profit from selling the option.
- Buy the stock, then immediately sell it. This means I would need the money available for 100 shares and would require me to try to sell them quickly. It's possible I won't have the funds for 100 shares of the stock.
If my understanding of options is incorrect, please assist me.