• Options Course
  • High Level Options
  • Privacy Policy
  • Terms of Use
  • Cookies
  • Financial Disclosure
How to Trade Options » INDEX OPTIONS » Index Call Options

Index Call Options

Index call options are a simple, yet generally stable, way to trade options. Stock indexes are more inclined to trade in predictable trends than individual company stocks – and for this reason, can provide a good option trading strategy. Assuming you believe the index will rise in the near future, your most profitable strategy might be to simply purchase an ATM index long call option contract.

The obvious benefit with going long index call options, is unlimited profit potential, since there is no theoretical price limit to which the underlying index may aspire before option expiration date.

* Profit = Index Settlement Value – Index Call Strike Price – Premium Paid

Unlike futures and spot forex positions, the risk on buying long calls is limited to the premium paid. You cannot go into margin call territory.

index call options

Index Call Options Example

Let’s imagine we are trading a broad based index such as the S&P500. These indexes represent a broad cross section of the entire market, which means their price action is much more predictable than for individual companies.

We believe the index will advance further north in the near future and wish to take advantage of this. We have a choice of the following:

Buy OTM index calls … OR
Buy ATM index calls … OR
Buy ITM index calls

Each of the above scenarios comes with it’s own risk to reward ratio and probability of realizing a profit. The out-of-the-money (OTM) calls are naturally cheaper, but will only become profitable once they are sufficiently in-the-money to pay for the premium and then some. However, the longer time we allow before expiration, the greater the likelihood this will be achieved.

So imagine the S&P 500 index is trading at 1800 and we wish to purchase ATM call options with 120 days to expiration. We would pay around $53.80 per option contract. If the S&P 500 rose to 1900 at expiration date, the options would be 100 points in the money.

Our profit on these index call options would be:

1900 – 1800 – 53.80 = $46.20 profit per option contract.

NOTE:- this is at expiration. If the underlying reached that point before expiration date, there would also be some “time value” in the premium, giving additional profit.

In the money index call options would be more expensive, but they would also have a greater options delta. This additional delta would provide greater protection should the price go against you, but in percentage terms, less return on risk when in the money.

Commissions on Index Call Options

Because we are entering a simple position, going long index calls, the commissions will be cheap when compared to other strategies. They would be typically between $10 and $20 depending on your broker.

You Might Also Like

  • What Can The Forex Maestro Do For You?What Can The Forex Maestro Do For You?
  • The Bear Call Calendar Spread Option Strategy ExplainedThe Bear Call Calendar Spread Option Strategy Explained
  • Spider Options TradingSpider Options Trading
  • Using the VIX IndexUsing the VIX Index

Filed Under: INDEX OPTIONS Tagged With: buying index calls, index long call

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Search for Anything Here

Main Pages

  • Home
  • Options Basics
  • Covered Calls Options
  • Advanced Strategies
  • Option Spread Trading
  • Stock Option Trading
  • Index Options
  • Stock Chart Analysis
  • Forex Options Trading
  • Options Trading Software
  • Option Trading Systems
  • Commodity Futures Options
  • Options Broker Reviews
  • Glossary of Options Trading Terms
  • Financial Disclosure

Latest Articles

  • Investing Basics – Diversify Your Portfolio to Make Money
  • Want Trading Success? Avoid These Four Trading Mistakes
  • Technical Analysis of Stock Charts
  • The Calendar Straddle Option Strategy
  • Candlestick Chart Patterns Explained
  • Bottom Fishing Stocks Using Inflated Option Prices
  • Bottom Fishing Stock Strategy – Example
  • Comparing the Bear Call Calendar Spread with the Traditional Bear Call Spread
  • Is Binary Options a Scam if you Have a System?
  • Call Calendar Spread Example
  • Options Trading Education and Training
  • The Call Calendar Spread Explained
  • The Three Legged Box Options Trade
  • Near Riskless Trading Strategies
  • Is Binary Options a Scam? Read This and Decide
  • Gold ETF Investing – 10 Facts You Should Know
  • How to Profit Like a Pro Trader
  • Earnings Report Definition
  • Jamie McIntyre and the 21st Century Academy
  • You Can! Be a Successful Options Trader


options trading pro system

Save

Home   |   Site Map   |   Privacy Policy   |   Terms of Use   |   Amazon Affiliate   
Copyright © 2002- Option Trading Fortune. ALL RIGHTS RESERVED.

Page copy protected against web site content infringement by Copyscape


DISCLAIMER: All stock options trading and technical analysis information on this website is for educational purposes only. While it is believed to be accurate, it should not be considered solely reliable for use in making actual investment decisions. This is neither a solicitation nor an offer to Buy/Sell futures or options. Futures and options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. Please read "Characteristics and Risks of Standardized Options" before investing in options. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.