Watch our video on how to buy call options.
How to Buy Call Options
- Here's how to buy call options:
- Choose your broker.
- Fund your account.
- Choose expiration date.
- Pick strike price.
- Look for high open interest.
- Look for volume = liquidity.
- Have entry and exit place.
- Place your order.
- Take profits, and limit risk.
Do you know how to buy call options? Calls make up part of the most basic options trading application. As a result, you need to know how to buy them.
Stock options trading is a great way to make money no matter what the market is doing. Whether the market is up, down or trading sideways there's a strategy to make money.
What is options trading? An options contract gives you the right but not the obligation to buy (call) or sell (put) a stock at a specified price within a set time.
In other words, you pay the premium to have the option to own the stock without the commitment. One contract controls 100 shares.
As a result, trading options is many times cheaper than stock market trading. Options have the perception of being risky and hard.
While they definitely have more moving parts than stocks, if learned properly, they can be quite lucrative. When you learn how to buy calls, you're looking the basic bullish principle of options trading.
An option expires. Therefore, they're known as wasting assets. Components such as time decay or theta can work against you. Which is a new concept if you're starting to learn stock training.
2. Choose a Broker You're Comfortable With
Brokers are a large part of trading. They're the bread and butter of trading. Without them, you wouldn't have the ability to place trades yourself.
As a result, when you're learning how to buy calls, you want to make sure you have a broker you're comfortable with. Brokers that have easy to understand options chains are a plus.
The options chain is where you'll buy call options. You're able to customize your options chain to show exactly what you're looking for.
Whether it's the Greeks, implied volatility or volume, you can add one, two or all of them. Here at the Bullish Bears, we're big fans of ThinkorSwim by TD Ameritrade for options trading.
They have a great platform with simulated trading, easy to use options chain and fantastic charting. As a result, you'll be well on your way to learning how to buy calls.
3. Why Do You Want to Buy a Call?
When you're learning how to buy call options, the first thing you need to understand is what a call is. A call takes the bullish bias of a trade.
In other words, if you're bullish on a stock, you'd buy a call option. Why not buy a stock instead of the option? After all, stocks don't expire.
In fact, you could just follow a trading service in and out of their trades. That however, isn't a good idea. Most unsuccessful trades occur from new traders following the gurus in and out of trades.
You want to be in charge of your trading destiny. When you're buying call options because you know a stock is bullish, you can set the trade parameters.
In essence, a call is going to be bullish. As a result, when you buy calls, you believe the stock is going to move up.
When Should You Buy a Call Option Strategy?
- Here's when you should buy a call option strategy:
- When you're sure price is strongly going to go up. You're long the stock.
- Don't buy a call option if price looks bearish.
- Avoid call options in a range bound market.
- Consider alternatives such as a put credit spread or call debit spread.
1. Patterns: How to Buy Call Options
When you're learning how to buy a call, you want to make sure you know the stock is, in fact, going to be bullish. How can you tell?
Candlestick patterns are a great way to tell if a stock is bullish. As a result, you need to know what patterns are and how to tell if they're bullish or bearish. You can use a candlestick cheat sheet to help you out as you learn.
After all, you wouldn't want to buy call options on a bearish pattern. That would mean you're most likely going to a loss. Remember that options expire and are wasting assets.
As a result, time works against you. One of the reasons options are seen as risky is the fact that you can lose the entire trade.
For example, if you bought call options for $650 but the trade went against you, you could lose the entire $650. It all depends on your risk management. Being successful at knowing how to buy call options is knowing how to trade using risk management.
2. Learning How to Buy Call Options
When learning how to buy call options, you also need to know how to close out the position. That might seem obvious, however, that's not always the case.
Make sure you know how to close out your position on your trade. Many times, right clicking brings up the option to close. As a result, you're able to get out of the trade.
Remember that risk management is key. When buying calls, you don't want to get too greedy. You never go broke taking your profits.
We've all been in that place where we have a profit and want to hold to get more money. Make sure you know where support and resistance are at. What are the candlesticks and patterns telling you?
Many times greed and fear are the enemies of profit. When you can keep those emotions under control, closing out your call position helps protect your profit.
However, not every trade will be a winning one. As a result, learn to cut your losses quickly. With options many times letting them site in hopes of recovering isn't the best idea. Take our options trading course to find out why.
3. Make Sure to Practice
It's important to practice when you're learning how to buy call options. Since options aren't as cut and dry as stocks, practice is essential to success.
Make hundreds of practice trades before you start using real money. You may think that sounds excessive. However, you'll be grateful once things like time decay set in.
You'll realize how much the Greeks affect things like profit and loss as well as how to use them to your advantage. Call buying is bullish.
As a result, you want to make sure you can find patterns along with support and resistance. Practice helps to work out the kinks. That way when you go live, you're prepared.