The subject line of the email you send will be "Fidelity. If you are bullish about a stock, buying calls versus buying the stock lets you control the same amount of shares with less money. If the stock does rise, your percentage gains may be much higher than if you simply bought and sold the stock. Of course, there are unique risks associated with trading options.

Watch the video and read on to see whether buying calls may be an appropriate strategy for you:. The buyer of call options has the right, but not the obligation, to buy an underlying security at a specified strike price. That may seem like a lot of stock market jargon, but all it means is that if you were to buy call options on XYZ stock, for example, you would have the right to buy XYZ stock at an agreed-upon price before a specific date.

The primary reason you might choose to buy a call option, as opposed to simply buying a stock, is that options enable you to control the same amount of stock with less money. Compared with buying stock, buying call options requires a little more work.

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Knowing how options work is crucial to understanding whether buying calls is an appropriate strategy for you. There are several decisions that must be made before buying options. These include:. Now, compare that with the cost of buying the stock, rather than buying the call options.

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This illustrates the primary purpose of options. They effectively allow you to control more shares at a fraction of the price. The ultimate goal is for the stock price to rise high enough so that it is in the money and it covers the cost of purchasing the options. In addition to being able to control the same amount of shares with less money, a benefit of buying a call option versus purchasing shares is that the maximum loss is lower.

How to trade options on Fidelity

Plus, you know the maximum risk of the trade at the outset. If the stock decreased in value and you were not able to exercise the call options to buy the stock, you would obviously not own the shares as you wanted to. Another disadvantage of buying options is that they lose value over time because there is an expiration date. Stocks do not have an expiration date. Also, the owner of a stock receives dividends, whereas the owners of call options do not receive dividends.

Next steps to consider

This is particularly true for options trades. The maximum potential profit for buying calls is the same profit potential as buying stock: it is theoretically unlimited. The reason is that a stock can rise indefinitely, and so, too, can the value of an option. Conversely, the maximum potential loss is the premium paid to purchase the call options. If the underlying stock declines below the strike price at expiration, purchased call options expire worthless.

If the stock does not rise above the strike price before the expiration date, your purchased options expire worthless and the trade is over. You must first qualify to trade options with your brokerage account. At Fidelity, this requires completing an options application which asks questions about your financial situation and investing experience, and reading and signing an options agreement. Visit our Learning Center to increase your options knowledge with guided education, including on-demand webinars, for every experience level. Chat with an investment professional.

Key takeaways

Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request. There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, and collars, as compared with a single option trade. See all account types.



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Trading options on Fidelity.com

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Buying calls: A beginner options strategy

Message Optional. Options Trading Overview. By using this service, you agree to input your real email address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an email. All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf.

The subject line of the email you send will be "Fidelity. The options ticket on Fidelity. This includes a single, multi-leg or custom strategy. Watch this video to learn how to leverage Fidelity. Use this educational tool to help you learn about a variety of options strategies. Options trading entails significant risk and is not appropriate for all investors.

Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request.