Call Buying 
The success of a call buying strategy depends primarily on one's ability to select 
stocks that will go up and to time the selection reasonably well. Thus, call buying is 
not a strategy in the same sense of the word as most of the other strategies discussed 
in this text. Most other strategies are designed to remove some of the exactness of 
stock picking, allowing one to be neutral or at least to have some room for error and 
still make a profit. Techniques of call buying are important, though, because it is nec­
essary to understand the long side of calls in order to understand more complex 
strategies correctly. 
Call buying is the simplest form of option investment, and therefore is the most 
frequently used option "strategy" by the public investor. The following section out­
lines the basic facts that one needs to know to implement an intelligent call buying 
program. 
WHY BUY? 
The main attraction in buying calls is that they provide the speculator with a great 
deal of leverage. One could potentially realize large percentage profits from only a 
modest rise in price by the underlying stock. Moreover, even though they may be 
large percentagewise, the risks cannot exceed a fixed dollar amount - the price orig­
inally paid for the call. Calls must be paid for in full; they have no margin value and 
do not constitute equity for margin purposes. Note: The preceding statements 
regarding payment for an option in full do not necessarily apply to LEAPS options, 
which were declared marginable in 1999. The following simple example illustrates 
how a call purchase might work. 
95