Call option

Call option

Introduction

A Call option is a popular financial derivative in the realm of Binary options trading that gives an investor the right, but not the obligation, to purchase an underlying asset at a predetermined price within a specified time frame. In binary options trading, Call options are used by traders who predict that asset prices will rise, enabling them to profit from upward market movements. This article provides a comprehensive guide to Call options, including practical examples, a step-by-step guide for beginners, and numerous internal links to related topics such as Trading Strategies, Market volatility, and Risk Management.

What is a Call Option?

A Call option is a contract that allows the holder to buy an asset at an agreed strike price before the option expires. In binary options, instead of buying an asset outright, traders speculate on whether the asset's price will be above the strike price at a specified time. Key concepts related to Call options include:

• Strike Price
• Premium
• Expiration Date
• Underlying Asset

For a deeper understanding of derivatives, refer to the Options page, which covers both call and put options in detail.

How Does a Call Option Work?

In a Call option, the investor pays a premium for the potential profit that could be earned if the asset’s price rises. The potential for profit is determined by the difference between the current market price and the strike price. If the price exceeds the strike price at the time of expiration, the call option is considered "in the money," resulting in a profit. On the other hand, if the price remains below the strike price, the trader loses the premium paid.

A useful way to visualize this concept is by using the following table that compares the scenarios in binary options:

Scenario	Outcome
Price > Strike Price at Expiration	Profit realized from the Contract
Price < Strike Price at Expiration	Loss confined to the Premium paid

Practical Examples

To help illustrate how Call options work in binary options trading, consider the following examples:

1. IQ Option Example:

  - Suppose the current price of a stock is $50, and a trader predicts the price will go up. The trader buys a Call option with a strike price of $51, and an expiration time of 60 seconds. If the stock price rises to $52 by expiration, the option is in the money, and the trader earns a profit based on the agreed payout.

2. Pocket Option Example:

  - On the Pocket Option platform, a trader might choose to trade a Call option on a currency pair such as EUR/USD. If the trader anticipates that the Euro will appreciate, they can select a Call option contract that pays out if the rate increases within a predetermined time frame.

Both IQ Option and Pocket Option offer user-friendly interfaces with features such as charts and technical analysis tools, making it easier for beginners to place a Call option and monitor its performance.

Step-by-Step Guide for Beginners

For beginners venturing into the world of Call options within Binary options trading, here is a straightforward guide:

1. Research and Understand:

  a. Study the fundamentals of Call option and familiarize yourself with the basic terminology (e.g., strike price, premium, expiration date).  
  b. Read articles on Technical analysis and Trading Strategies to understand market predictions.

2. Choose a Trading Platform:

  a. Evaluate platforms such as IQ Option and Pocket Option that offer Binary options trading with Call option contracts.  
  b. Ensure the reliability, regulatory compliance, and user support of the chosen platform.

3. Create a Demo Account:

  a. Sign up for a demo account to practice Call option trading with virtual funds.  
  b. Experiment with different strategies to understand how Call options work in a simulated environment.

4. Fund Your Trading Account:

  a. Once confident in your strategy, deposit real funds into your account.  
  b. Manage your risk by starting with a small investment that won’t negatively impact your capital.

5. Place Your Call Option Trade:

  a. Select the asset you want to trade and determine the strike price and expiration time.  
  b. Confirm your trade and carefully monitor the market for fluctuations.

6. Monitor and Close:

  a. Use technical analysis tools available on the trading platform to track market trends.  
  b. If the Call option becomes profitable, consider closing the trade to secure gains, or let it reach expiry if the conditions remain favorable.

Conclusion and Recommendations

Call options are a versatile tool in Binary options trading that can help traders profit from upward movements in the market. Beginners are encouraged to start with thorough research, use demo accounts, and choose reliable platforms such as IQ Option and Pocket Option. Always remember to manage your risk and continuously educate yourself through resources like Trading Strategies, Technical analysis, and Market volatility. With practical examples, a clear understanding of the mechanism, and a step-by-step guide, traders can confidently navigate the exciting world of Call options.

Start Trading Now

Register at IQ Option (Minimum deposit $10) Open an account at Pocket Option (Minimum deposit $5)