In recent years, many people have turned to call options as a way to invest in their future. A call option is a contract that allows an investor to purchase shares of stock at a set price within a certain period of time. Call options are often used as a way to hedge against the risk of a stock market crash or to speculate on the future price of a stock.
For those who are looking for ways to maximize their returns from their National Pension Scheme, call options can be an attractive option. While there are some risks associated with this type of investment, there can also be significant rewards. In this blog post, we will take a closer look at how call options work and how they can be used in your National Pension Scheme.
What are call options?
A call option is a type of derivatives contract that gives the holder the right, but not the obligation, to buy an underlying asset at a specified price within a certain time period. The buyer of a call option believes the underlying asset will increase in value, while the seller believes it will decrease.
How do they work? Call options are contracts that give the holder the right to buy an underlying asset at a specified price for a certain period of time. When you buy a call option, you’re betting that the price of the underlying asset will increase. If it does, you can exercise your option and buy the asset at the strike price. If the price doesn’t increase, you can let your option expire and won’t lose anything beyond the premium you paid for it.
What are the benefits?
There are two main benefits to buying call options:
1) Leverage: Call options to provide leverage because they allow you to control a large amount of an underlying asset with a relatively small amount of money. For example, let’s say you wanted to buy 100 shares of ABC stock, which is currently trading at $10 per share. If you had $1,000 to invest, you could only purchase 10 shares. However, if you bought one call option contract on ABC stock with a strike price of $10 per share and an expiration date three months from now, your investment would be leveraged 10-to-1 because each contract controls 100 shares of stock.
2) Limited risk: Buying calls also limits your downside risk because your loss is limited to the premium paid for the options contract (plus any commissions and fees incurred when entering or exiting the trade). In our previous example, if ABC stock fell to $5 per share at expiration, your max loss would be $500 (($10 – $5) x 100 shares + commissions/fees).
How can you use call options in your National Pension Scheme?
The biggest risk when using call options in your National Pension Scheme is that the stock price might not go up. If this happens, you will lose money. Another risk is that the company might go bankrupt before the option expires. This would mean that you would not get anything from the company. Finally, there is a risk that the company will not pay out the dividend, or that the dividend will be less than expected.
What are the rewards?
The biggest reward of using call options in your National Pension Scheme is that you could make a lot of money if the stock price goes up. For example, if you invest $1,000 in a stock and it goes up by 10%, you will make $100. If you invest $1,000 in a call option and it goes up by 10%, you will make $1,000. This is because, with a call option, you have the right to buy 100 shares for every option contract that you own. So, if one share costs $10 and it goes up to $11, then each contract is worth $110 ($11 per share x 100 shares).
Conclusion
As we have seen, call options can be a useful tool in your National Pension Scheme. They can help you to diversify your portfolio and to protect your investment from market volatility. However, it is important to remember that there are risks involved in using call options and you should always seek professional advice before making any decisions about how to use them in your pension scheme.
