The price you pay for an option, called the premium, has two components: intrinsic value and time value. Intrinsic value is the difference between the strike price and the share price, if the stock price is above the strike. Time value is whatever is left, and factors in how volatile the stock is, the time to expiration and interest rates, among other elements. For example, suppose you have a \$100 call option while the stock costs \$110. Let’s assume the option’s premium is \$15. The intrinsic value is \$10 (\$110 minus \$100), while time value is \$5.
Another example involves buying a long call option for a \$2 premium (so for the 100 shares per contract, that would equal \$200 for the whole contract). You buy an option for 100 shares of Oracle (ORCL) for a strike price of \$40 per share which expires in two months, expecting stock to go to \$50 by that time. You've spent \$200 on the contract (the \$2 premium times 100 shares for the contract). When the stock price hits \$50 as you bet it would, your call option to buy at \$40 per share will be \$10 "in the money" (the contract is now worth \$1,000, since you have 100 shares of the stock) - since the difference between 40 and 50 is 10. At this point, you can exercise your call option and buy the stock at \$40 per share instead of the \$50 it is now worth - making your \$200 original contract now worth \$1,000 - which is an \$800 profit and a 400% return.
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With this strategy, the trader's risk can either be conservative or risky depending on their preference (which is a definite plus). For iron condors, the position of the trade is non-directional, which means the asset (like a stock) can either go up or down - so, there is profit potential for a fairly wide range. To use this kind of strategy, sell a put and buy another put at a lower strike price (essentially, a put spread), and combine it by buying a call and selling a call at a higher strike price (a call spread). These calls and puts are short.

With respect to an option, this cost is known as the premium. It is the price of the option contract. In our home example, the deposit might be \$20,000 that the buyer pays the developer. Let’s say two years have passed, and now the developments are built and zoning has been approved. The home buyer exercises the option and buys the home for \$400,000 because that is the contract purchased.
Research is provided for informational purposes only, does not constitute advice or guidance, nor is it an endorsement or recommendation for any particular security or trading strategy. Research is provided by independent companies not affiliated with Fidelity. Please determine which security, product, or service is right for you based on your investment objectives, risk tolerance, and financial situation. Be sure to review your decisions periodically to make sure they are still consistent with your goals.
Covered calls can make you money when the stock price increases or stays pretty constant over the time of the option contract. However, you could lose money with this kind of trade if the stock price falls too much (but can actually still make money if it only falls a little bit). But by using this strategy, you are actually protecting your investment from decreases in share price while giving yourself the opportunity to make money while the stock price is flat.
Purchasing a call option is essentially betting that the price of the share of security (like a stock or index) will go up over the course of a predetermined amount of time. For instance, if you buy a call option for Alphabet (GOOG) at, say, \$1,500 and are feeling bullish about the stock, you are predicting that the share price for Alphabet will increase.
You also can limit your exposure to risk on stock positions you already have. Let’s say you own stock in a company but are worried about short-term volatility wiping out your investment gains. To hedge against losses, you can buy a “put” option that gives you the right to sell a particular number of shares at a predetermined price. If the share price does indeed tank, the option limits your losses, and the gains from selling help offset some of the financial hurt.