98 Part II: Call Option Strategies 
When risk is considered, the in-the-money call clearly has less probability of 
risk. In the prior example, the in-the-money call buyer would not lose his entire 
investment unless XYZ fell by at least 5 points. However, the buyer of the out-of-the­
money July 70 would lose all of his investment unless the stock advanced by more 
than 5 points by expiration. Obviously, the probability that the in-the-money call will 
expire worthless is much smaller than that for the out-of-the-money call. 
The time remaining to expiration is also relevant to the call buyer. If the stock 
is fairly close to the striking price, the near-term call will most closely follow the price 
movement of the underlying stock, so it has the greatest rewards and also the great­
est risks. The far-term call, because it has a large amount of time remaining, offers 
the least risk and least percentage reward. The intermediate-temi call offers a mod­
erate amount of each, and is therefore often the most attractive one to buy. Many 
times an investor will buy the longer-term call because it only costs a point or a point 
and a half more than the intermediate-term call. He feels that the extra price is a bar­
gain to pay for three extra months of time. This line of thought may prove somewhat 
misleading, however, because most call buyers don't hold calls for more than 60 or 90 
days. Thus, even though it looks attractive to pay the extra point for the long-term 
call, it may prove to be an unnecessary expense if, as is usually the case, one will be 
selling the call in two or three months. 
CERTAINTY OF TIMING 
The certainty with which one expects the underlying stock to advance may also help 
to play a part in his selection of which call to buy. If one is fairly sure that the under­
lying stock is about to rise immediately, he should strive for more reward and not be 
as concerned about risk. This would mean buying short-term, slightly out-of-the­
money calls. Of course, this is only a general rule; one would not normally buy an out­
of-the-money call that has only one week remaining until expiration, in any case. At 
the opposite end of the spectrum, if one is very uncertain about his timing, he should 
buy the longest-term call, to moderate his risk in case his timing is wrong by a wide 
margin. This situation could easily result, for example, if one feels that a positive fun­
damental aspect concerning the company will assert itself and cause the stock to 
increase in price at an unknown time in the future. Since the buyer does not know 
whether this positive fundamental will come to light in the next month or six months 
from now, he should buy the longer-term call to allow room for error in timing. 
In many cases, one is not intending to hold the purchased call for any signifi­
cant period of time; he is just looking to capitalize on a quick, short-term movement 
by the underlying stock. In this case, he would want to buy a relatively short-term in­
the-money call. Although such a call may be more ex-pensive than an out-of-the-