Devoted to understanding the basics and fundamentals of investing

I've given a basic explanation of options.  I've explained about long term options called LEAPS.  Now I am going to start a few posts on option strategies.  Today I will write about a strategy to use if you are bullish (positive) on the market.

Buy a call option. 

A call option gives you the right to buy a stock at a specific price (the strike price) during a specific period (an American style option) or on a specific date (a European style option). 

You can buy the option At the money (at the price the stock trades at today), Out of the money (at a price higher than the stock trades for today), or In the money (at a price less than the stock trades for today).

If you are bullish, you should buy out of the money call options.  The more bullish you are, the more out of the money you should go (and the cheaper the option will be).

As the price of the stock goes up your option will become more valuable.  Your breakeven at expiry (when the option matures or ends) is the strike price plus the premium you paid for the option.  The maximum you can loose is the premium you  pay.  Your profit potential is unlimited.  You wouldn't ever have to post margin for this type of trade.

You win if the stock goes up more than your premium.  You loose if the stock goes up less than your premium or goes down in price.