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+96 Part II: Call Option Strategies 
+Example: Assume that XYZ is at 48 and the 6-month call, the July 50, is selling for 
+3. Thus, with an investment of $300, the call buyer may participate, for 6 months, in 
+a move upward in the price ofXYZ common. IfXYZ should rise in price by 10 points 
+(just over 20%), the July 50 call will be worth at least $800 and the call buyer would 
+have a 167% profit on a move in the stock of just over 20%. This is the leverage that 
+attracts speculators to call buying. At expiration, if XYZ is below 50, the buyer's loss 
+is total, but is limited to his initial $300 investment, even if XYZ declines in price sub­
+stantially. Although this risk is equal to 100% of his initial investment, it is still small 
+dollarwise. One should nornwlly not invest more than 15% of his risk capital in call 
+buying, because of the relatively large percentage risks involved. 
+Some investors participate in call buying on a limited basis to add some upside 
+potential to their portfolios while keeping the risk to a fixed amount. For example, if 
+an investor normally only purchased low-volatility, conservative stocks because he 
+wanted to limit his downside risk, he might consider putting a small percentage of his 
+cash into calls on more volatile stocks. In this manner, he could "trade" higher-risk 
+stocks than he might normally do. If these volatile stocks increase in price, the 
+investor will profit handsomely. However, if they decline substantially - as well they 
+might, being volatile - the investor has limited his dollar risk by owning the calls 
+rather than the stock. 
+Another reason some investors buy calls is to be able to buy stock at a reason­
+able price without missing a market. 
+Example: With XYZ at 75, this investor might buy a call on XYZ at 80. He would like 
+to own XYZ at 80 if it can prove itself capable of rallying and be in-the-money at expi­
+ration. He would exercise the call in that case. On the other hand, if XYZ declines in 
+price instead, he has not tied up money in the stock and can lose only an amount 
+equal to the call premium that he paid, an amount that is generally much less than 
+the price of the stock itself. 
+Another approach to call buying is sometimes utilized, also by an investor who 
+does not want to "miss the market." Suppose an investor knows that, in the near 
+future, he will have an amount of money large enough to purchase a particular stock; 
+perhaps he is closing the sale of his house or a certificate of deposit is maturing. 
+However, he would like to buy the stock now, for he feels a rally is imminent. He 
+might buy calls at the present time if he had a small amount of cash available. The 
+call purchases would require an investment much smaller than the stock purchase. 
+Then, when he receives the cash that he knew was forthcoming, he could exercise the 
+calls and buy the stock. In this way, he might have participated in a rally by the stock 
+before he actually had the money available to pay for the stock in full.