An Option is a contractual right to buy or sell a given number of shares of a specific stock (usually in 100 share lots), at a specific price and within a specific time period.
There are two types of Options:
"Call Options" give you the right to buy a stock at a given price. For example, a June "XYZ Corporation" call gives you the right to purchase 100 shares of XYZ Corporation stock at a fixed price per share until June.
"Put Options" give you the right to sell a stock at a given price.
Selling (also known as writing) a Covered Call means selling an option on stock that you own. For example, if you hold 100 shares of XYZ Corporation stock, you can sell a call for 100 shares of XYZ Corporation stock.
The purpose of selling Covered Call Options is to generate additional income from the premium you receive when a call is sold and to decrease risk should the shares you own decline in price. The risk involved in selling a Covered Call is if the stock you own (XYZ Corporation in this example) suddenly increases in value above the option exercise price it will be called away at the option price instead of the higher market price.
Option strategies can be either conservative or speculative. A conservative option strategy has been considered in the above example.
It should be noted that options strategies are not suitable for all investors, since they involve a relatively high degree of risk, depending on the strategies applied.
Current options disclosure documents will be sent by Cales Investments together with the Options Agreements or upon request.
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