Thursday, July 18th, 2019

How Do Call Options Work on General Motors?

 

How do call options work on General Motors? After the successful initial public offering of General Motors stock the revitalized company’s stock is also listed on options exchanges. The stock has been trading in and around the $34 range and many do not expect to see a rapid increase in share price. Thus, some options traders are looking at selling calls on GM. How do call options work on General Motors Stock? A call options gives the buyer the right but not the obligation to buy 100 shares of stock, per contract until the contract expiration date. The buyer receives a premium for offering the same 100 shares. Covered calls are when the owner of a stock like General Motors sells calls. Uncovered calls are when an options trader does not own shares. If the stock does not rise appreciably in price the owner of General Motors stock will pocket the premium and continue to own the stock. Likewise a trader who does not own the stock will earn a premium whether the buyer exercises the option or not. If the stock goes up in price the buyer will exercise the option and buy 100 shares of stock per contract. The owner of stock will simply sell his stock and forego any gains in excess of the premium received. The trader who does not own stock will need to buy stock at the new and higher price in order to satisfy the contract. GM options will trade like any others and those who correctly anticipate price movement will benefit.

How do call options work on General Motors stock for the trader? The trader will need to sell stock if the buyer exercises the option. As he did not own any stock he will buy at the current spot price of the stock but will need to sell at the strike price which is the lower contract price. A trader who does not own any stock can make nice profits on selling calls providing that he picks his stocks right. Naked options trading provides the investor with a great deal of leverage. How do call options work on General Motors stock for the trader if the stock price rises greatly? This could be devastating as the same leverage works both ways for those who sell options on stocks that they do not own. Beside how do call options work on General Motors on can ask how do stock options work in general? It depends upon whether one buys or sells and if the options are puts or calls.

How to call options work on general motors stock is not all that an investor should ask if he is interested in how to trade stock options profitably on GM. If the investor believes that the GM stock price may indeed fall he may be more interested in buying puts that in buying calls. The buyer of a put option pays for the right to sell 100 shares of the underlying stock at the strike price, the contract price, but is not under an obligation to do so. The seller of a put option, however, is obligated to buy at the strike price. If, as the buyer anticipates, the stock price plummets the buyer of the option will exercise the contract and sell the stock at the contract price. He will then be able to repurchase the stock at a much lower spot price. An investor who owns a block of stock in a volatile market will often buy puts in order to hedge his stock position. A trader who firmly believes that the price of the stock will not drop will often sell puts and earn a premium on each contract. The risk for the trader is that if he is wrong the losses can be significant. For the investor interested in profiting from GM stock volatility asking how do call options work in General Motors is a step in the right direction.

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