A major appeal of buying a call is that you're able to leverage your investment, with the possibility of realizing a much higher percentage return than if you had made the equivalent stock transaction. For example, if you purchase 100 shares of NRQ stock for $5 a share, you'll make an initial investment of $500. If, over the next year, the stock's price rises to $10 and you sell your shares, you'd make a $500 profit or 100% return (100 shares x $10 a share = $1,000 - $500 initial investment = $500 profit, or a 100% return).
Say, on the other hand, you had purchased 10 calls at $50 a call on NRQ stock, making the same initial investment of $500. If the strike price is $7 and the stock's price rises to $10, your option would be in-the-money by $3. If you sold at this point, the 10 contracts would have a $3,000 value, or $2,500 more than you originally invested and a 500% return.
However, just as your investment may result in significant percentage returns, it may also result in a significant loss. For instance, if the stock's price fell to $4 a share and you sold at that point, you would lose $100, or 20% of your original investment. Had you bought the call options and let them expire because they were out-of-the-money, you'd have lost $500, or 100% of your original investment.
Long Call Graph View Graphic
In the graph shown here, the vertical (Y-axis) represents profit and loss, while the horizontal (X-axis) shows the price of the underlying stock. The blue line shows your potential profit or loss given the price of the underlying.
Examples exclude transaction costs and tax considerations.
Options involve risk and are not suitable for all investors. Detailed information on our policies and the risks associated with options can be found in Scottrade's Options Application and Agreement, Brokerage Account Agreement, and Characteristics and Risks of Standardized Options (available at your local Scottrade branch office or from the Options Clearing Corporation at 1-888-OPTIONS or by visiting www.888options.com). All option accounts require prior approval by Scottrade. Market volatility, volume, and system availability may impact account access and trade execution. Supporting documentation for any claims will be supplied upon request.
| Trading Web Site | 11/14/09 |
| ScottradeELITE | 11/14/09 |
| Trading Web Site | 11/21/09 |
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Any specific securities, or types of securities, used as examples are for demonstration purposes only. No information on this Web site should be considered a recommendation or None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security.
Investors should consider the investment objectives, risks, and charges and expenses of a mutual fund carefully before investing. A mutual fund's prospectus contains this and other information about the mutual fund. Prospectuses are available through our trading site or through a Scottrade branch office. The prospectus should be read carefully before investing. No transaction fee (NTF) funds are subject to the terms and conditions of the NTF funds program. Scottrade is compensated by the funds participating in the NTF program through recordkeeping, shareholder, or SEC 12b-1 fees.
Investors should consider the investment objectives, charges, expense, and unique risk profile of an Exchange Traded Fund (ETF) carefully before investing. Leveraged and Inverse ETFs may not be suitable for long-term investors and may increase exposure to volatility through the use of leverage, short sales of securities, derivatives and other complex investment strategies. A prospectus contains this and other information about the ETF and should be obtained from the issuer. The prospectus should be read carefully before investing.
Margin trading involves interest charges and risks, including the potential to lose more than deposited, or the need to deposit additional collateral in a falling market. Margin Disclosure Statement (PDF) is available for download, or it is available at one of our branch offices. It contains information on our lending policies, interest charges, and the risks associated with margin accounts.
Options involve risk and are not appropriate for all investors. Detailed information about the risks associated with options can be found in the Scottrade Options Application and Agreement, Brokerage Account Agreement, or by downloading the Characteristics and Risks of Standardized Options and Supplements (PDF) from The Options Clearing Corporation, or by requesting a copy from your local branch office. Supporting documentation for any claims will be supplied upon request.
Market volatility, volume, and system availability may impact account access and trade execution.
Testimonials may not be representative of the experience of other clients and are no guarantee of future performance or success.