First, let’s review basic option theory. If you’re bullish on a company, you have two choices: You can buy its stock; or, if you’re willing to sustain a greater level of risk, you can buy a call option, which is a contract that grants the right to buy the underlying stock at a predetermined price on or before expiration of the contract. Your goal is for the stock’s price to rise above the call option’s strike price, so you can exercise it when it’s in the money. A put option is similar, but it instead gives you the right to sell a stock at a set price and time. As an option holder effectively controls 100 shares for every single call option they own, the leverage it provides can make it very attractive for investors.
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