Buying & Selling Call Options
You're correct. If you have no option position at execution then you carry no risk. Your risk is only based on the net number of options you're holding at execution. This is handled by your broker or clearinghouse. Pretend that you wrote 1000 options, (you're short the call) then you bought 1000 of the same option (bought to cover) ... you are now flat and have zero options exposure. Pretend you bought 1000 options (you're long the calls) then you sold 1000 of them (liquidated your long) ... you are now flat and have zero options exposure. If you sold bought a call option then as you stated sold it to someone else what you are doing is selling the call you bought. That leaves you with no position.  This is the case if you are talking about the same strike, same expiration.
You could try to refine your options strategy:  For instance you could buy the USD 750 call option(s) you mentioned and at the same time sell (short) call options with a higher strike price, which is above the share price level you expect that Apple will trade at in one year (for instance USD 1,100).  By doing this, you would receive the premium of the call option(s) with the higher option, which in turn would help you finance buying your USD 750 call(s). The net effect of this trading strategy would be that you would give up the extra profit you would earn if Apple would rose above USD 1,100 (the strike price of the call option sold short). Your total risk would be even less than with your actual strategy (in my view). Today SPY (The S&P ETF) trades at $128. The option to buy at $140 (this is a Jan '13 call) trades for $5.  I buy the call, for $500 as they trade in 100 lots.  The S&P skyrockets to 1500 and SPY to $150. The call trades for $11, as it still has a month or two before expiring, so I sell it, and get $1100. The S&P rose 17%, but I doubled my money. If it 'only' rose 9%, to less than $140, I'd lose my investment. No, I don't need to buy the SPY I can sell the call any time before expiration. In fact, most options are not exercised, they are sold between purchase and expiration date. To Chris' comment, find out if the assignment commission is the same as the commission for an executed trade. If that does affect the profit, just let it expire.  I've had spreads (buy a call, sell a higher strike call, same dates) so deep in the money, I just made sense to let both exercise at expiration. Don't panic if all legs ofthe trade don't show until Sunday or even Monday morning. By buying the call option, you are getting the benefit of purchasing the underlying shares (that is, if the shares go up in value, you make money), but transferring the risk of the shares reducing in value. This is more apparent when you are using the option to offset an explicit risk that you hold. For example, if you have a short position, you are at unlimited risk of the position going up in value. You could decide you only want to take the risk that it might rise to $X. In that case, you could buy a call option with $X strike price. Then you have transferred the risk that the position goes over $X to the counterpart, since, even if the shares are trading at $X+$Y you can close out the short position by purchasing the shares at $X, while the option counterpart will lose $Y. "Great answer by @duffbeer. Only thing to add is that the option itself becomes a tradeable asset. Here's my go at filling out the answer from @duffbeer. ""Hey kid... So you have this brand-new video game Manic Mazes that you paid $50 for on Jan 1st that you want to sell two months from now"" ""Yes, Mr. Video Game Broker, but I want to lock in a price so I know how much to save for a new Tickle Me Elmo for my baby sister."" ""Ok, for $3, I'll sell you a 'Put' option so you can sell the game to me for $40 in two months."" Kid says ""Ok!"", sends $3 to Mr Game Broker who sends our kid a piece of paper saying: The holder of this piece of paper can sell the game Manic Mazes to Mr Game Broker for $40 on March 1st. .... One month later .... News comes out that Manic Mazes is full of bugs, and the price in the shops is heavily discounted to $30. Mr Options Trader realizes that our kid holds a contract written by Mr Game Broker which effectively allows our kid to sell the game at $10 over the price of the new game, so maybe about $15 over the price in the second-hand market (which he reckons might be about $25 on March 1st). He calls up our kid. ""Hey kid, you know that Put option that Mr Game Broker sold to you you a month ago, wanna sell it to me for $13?"" (He wants to get it a couple of bucks cheaper than his $15 fair valuation.) Kid thinks:  hmmm ... that would be a $10 net profit for me on that Put Option, but I wouldn't be able to sell the game for $40 next month, I'd likely only get something like $25 for it. So I would kind-of be getting $10 now rather than potentially getting $12 in a month. Note: The $12 is because there could be $15 from exercising the put option (selling for $40 a game worth only $25 in the second-hand market) minus the original cost of $3 for the Put option. Kid likes the idea and replies: ""Done!"". Next day kid sends the Put option contract to Mr Options Trader and receives $13 in return. Our kid bought the Put option and later sold it for a profit, and all of this happened before the option reached its expiry date." Looking at the SPY option chain you posted, all of the call options with a strike price of 199.50 or higher have a bid of N/A.  That's because the ask price for all of those options is 0.01, and the bid price has to be less than the ask price, but buyers are not allowed to bid 0.00.  It's not accurate to say that no one wants to buy those calls - anyone who wanted to buy one of those calls would just buy it at the ask price of 0.01. So why are people selling those calls for just 0.01?  The further out of the money you go as you get closer to expiration, the less likely the underlying stock or ETF (SPY in this case) will go over the strike price, and the less you can sell it for.  SPY closed yesterday at about 195, and it would have to go up almost 2.5% today for the 199.50 calls to be in the money, and a 2.5% move in one day is extremely unlikely. I don't think you understand options. If it expires, you can't write a new call for the same expiration date as it expired that day. Also what if the stock price decreases further to $40 or even more? If you think the stock will move in either way greatly, and you wish to be profit from it, look into straddles. "I look for buying a call option only at the money, but first understand the background above: Let's suppose X stock is being traded by $10.00 and it's January The call option is being traded by $0.20 with strike $11.00 for February. (I always look for 2% prize or more) I buy 100 stocks by $10.00 each and sell the option, earning $0.20 for each X stock. I will have to deliver my stocks by $11.00 (strike value agreed). No problem for me here, I took the prize plus the gain of $1.00. (continuing from item 3) I still can sell the option for the next month with strike equal or higher than that I bought. For instance, I can sell a call option of strike $10.00 and it might be worth to deliver stocks by $10.00 and take the prize. (continuing from item 3) Probably, it won't be possible to sell a call option with strike at the price that I paid for the stock, but that's not a problem. At the end of the option life (in February), the strike was $11.00 but the stock's price is $8.00. I got the $0.20 as prize and my stocks are free for trade again. I'll sell the call option for March with strike $9.00 (taking around 2% of prize). Well, I don't want to sell my stocks by $9.00 and make loss, right? But I'm selling the call option anyway. Then I wait till the price of the stock gets near the strike value (almost ATM) and I ""re-buy"" the option sold (Example: [StockX]C9 where C means month = March) and sell again the call option with higher strike to April (Example [StockX]D10, where D means month = April) PS.: At item 9 there should be no loss between the action of ""re-buy"" and sell to roll-out to the next month. When re-buying it with the stock's price near the strike, option value for March (C9) will be lower than when selling it to April (D10). This isn't any rule to be followed, this is just a conservative (I think they call it hedge) way to handle options and stocks. Few free to make money according to your goals and your style. The perfect rule is the one that meet your expectation, don't take the generalized rules too serious." The most likely explanation is that the calls are being bought as a part of a spread trade.  It doesn't have to be a super complex trade with a bunch of buys or sells. In fact, I bought a far out of the money option this morning in YHOO as a part of a simple vertical spread.  Like you said, it wouldn't make sense and wouldn't be worth it to buy that option by itself. "Whether or not you make money here depends on whether you are buying or selling the option when you open your position.  You certainly would not make money in the scenario where you are buying options at the open.  If fact you would end up loosing quite a lot of money. You do not specify whether you are buying or selling the options, so let's assume that you are buying both the call and the put.  We'll look a profitable trade at the bottom of my answer. Buying an in-the-money Call option with a strike price of $90 when the underlying asset price is $150 would cost you a small fraction over $6000 = (100 x $60) since the intrinsic value value of the option is $60.  Add to this cost any commission charged by your broker. Buying an out-of-the-money Put option with a strike price of $110 when the underlying asset price is $150 would cost you a ""small"" premium - lets say a premium of something like $0.50.  The option has no intrinsic value, only time value and a volatility value, so the exact cost would depend on the time to expiry and the implied volatility of the underlying asset. Since the strike price is ""well out of the money"", being about 27% below the underlying asset price, the premium would be small.  So, assuming the premium of $0.50, you would pay $50 for the option plus any commission applicable. The cash settlement on expiry, with an underlying settlement price of $100, would be a premium of $10 for each of the two options, so you would receive cash of 100 x ($10 + $10) = $2000, less any commission applicable.  However, you have paid $6000 + $50 to purchase the options, so you realise a net loss of $6050 - $2000 = $4050 plus any commissions applicable. Thus, you would make a profit on the put option, but you would realise a very large loss on the call option. On the other hand, if you open your position by selling the call option and buying the put option, then you would make money. For the sale of the call option you would receive about $6000.  For the purchase of the put option you would pay about $50. On settlement, you would pay $1000 to buy back the call option and you would receive about $1000 when selling the put option. Thus you net profit would be about ($6000 - $1000) for the call position, and ($1000 - $50) for the put position.  The net profit would then total $5950 less an commissions payable." "Number 2 cannot occur. You can buy the call back and sell the stock, but the broker won't force that #2 choice. To trade options, you must have a margin account. No matter how high the stock goes, once ""in the money"" the option isn't going to rise faster, so your margin % is not an issue.  And your example is a bit troublesome to me. Why would a $120 strike call spike to $22 with only a month left? You've made the full $20 on the stock rise and given up any gain after that. That's all. The call owner may exercise at any time. Edit: @jaydles is right, there are circumstances where an option price can increase faster than the stock price. Options pricing generally follows the Black-Scholes model. Since the OP gave us the current stock price, option strike price, and time to expiration, and we know the risk free rate is <1%, you can use the calculator to change volatility. The number two scenario won't occur, however, because a covered call has no risk to the broker, they won't force you to buy the option back, and the option buyer has no motive to exercise it as the entire option value is time premium." I would make a change to the answer from olchauvin: If you buy a call, that's because you expect that the value of call options will go up. So if you still think that options prices will go up, then a sell-off in the stock may be a good point to buy more calls for cheaper. It would be your call at that point (no pun intended). Here is some theory which may help. An options trader in a bank would say that the value of a call option can go up for two reasons: The VIX index is a measure of the levels of implied volatility, so you could intuitively say that when you trade options you are taking a view on two components: the underlying stock, and the level of the VIX index. Importantly, as you get closer to the expiry date this second effect diminishes: big jumps up in the VIX will produce smaller increases in the value of the call option. Taking this point to its limit, at maturity the value of the call option is only dependent on the price of the underlying stock. An options trader would say that the vega of a call option decreases as it gets closer to expiry. A consequence of this is that if pure options traders are naturally less inclined to buy and hold to expiry (because otherwise they would really just be taking a view on the stock price rather than the stock price & the implied volatility surface). Trading options without thinking too much about implied volatities is of course a valid strategy -- maybe you just use them because you will automatically have a mechanism which limits losses on your positions. But I am just trying to give you an impression of the bigger picture. "You're forgetting the fundamental issue, that you never have to actually exercise the options you buy.  You can either sell them to someone else or, if they're out of the money, let them expire and take the loss. It isn't uncommon at all for people to buy both a put and call option (this is a ""straddle"" when the strike price of both the put and call are the same). From Investopedia.com: A straddle is an options strategy in which the investor holds a position in both a call and put with the same strike price and expiration date, paying both premiums. This strategy allows the investor to make a profit regardless of whether the price of the security goes up or down, assuming the stock price changes somewhat significantly.   Read more: Straddle http://www.investopedia.com/terms/s/straddle.asp#ixzz4ZYytV0pT" One answer in four days tells you this is a niche, else there should be many replies by now.  The bible is McMillan on Options Note - I link to the 1996 edition which starts at 39 cents, the latest revision will set you back $30 used. The word bible says it all, it offers a great course in options, everything you need to know. You don't get a special account for option trading. You just apply to your regular broker, so depending what you wish to do, the amount starts at   You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that.  Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000.  Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience.   You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that.  Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000.  Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience. "In real life, you'd see spreads like AMZN 04/13/2017 910.00 C 4.90 +1.67 Bid: 4.75 Ask: 5.20 (with AMZN @ $897 right now) and the fill you'd get on the buy side would be closer to the ask. i.e. I'd offer $5.00 and hope that it filled.  Filling a $4 bid when ask is $8 isn't likely unless the stock blipped down enough for your price to fill.  Options are a lot like day trading, in most cases. Most members here will agree that day trading isn't investing, it's gambling. Long term, the S&P has been up 10%/yr. But any given day, the noise of the market is a 50/50 zero sum game. Most long term stock 'investors' do well. Those who get in and out, not so much.  There are aspects to options that are appealing. As you've seen, the return can be high, even IRL, but your loss can be 100% as well. Let me share with you a blurred line - I wrote ""Betting on Apple at 9 to 2"" in which I described an option strategy that ran 2 years and would return $10,000 on a $2200 bet. A similar bet that ended a year ago yielded a 100% loss. I don't post there very often, as I keep that trading to a minimum.  There are warnings for those who want to start trading options -"