For an investor to yield a profit, the price of the security has to increase before its exercise date. When there is indeed a rise in the value of a security, the investor should have bought it at the strike price and immediately sold it off at a higher market price and also may wait a little longer to discern the possibility of a further price rise.

A Call option is not bought if the price of security fails to rise above the striking price. In such a situation, the investor will only suffer a loss of premium.

Buying a call option provides more leverage to the holder as in the case of price rise, a buyer stands to make substantial gains as opposed to only selling the security. Even if the price of securities plummets, the loss of the investor remains fixed restricting any further loss that an investor may incur thereby leading to the generation of higher return even for a lower investment.

 

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