| While buyers seek options with the lowest possible | | | | and that decision can be made at any time. Of |
| time value and with the stock's market value within | | | | course, as long as the call is out of the money, it will |
| reasonable proximity to striking price, sellers do the | | | | not be exercised. That risk becomes real only if and |
| opposite. They seek calls with the highest possible | | | | when the call goes in the money (when the stock's |
| time value and the largest possible gap between | | | | market value is higher than the call's striking price). |
| striking price of the option and market value of the | | | | All investment strategies contain specific risk |
| stock. | | | | characteristics, and these should be clearly identified |
| Tip: Time is the buyer's enemy, but the opposite is | | | | and fully understood by anyone undertaking the |
| true for the seller. The seller makes a profit as time | | | | strategy. The risks tend to have unchanging |
| value evaporates. | | | | attributes. For example, the risks of buying stocks |
| When you sell a call, you grant the buyer the right to | | | | are consistent from one moment to another. The |
| buy 100 shares of the underlying stock at the striking | | | | experienced stock market investor understands this |
| price, at any time prior to expiration. That means | | | | and accepts the risk. However, call selling has a |
| that you assume the risk of being required to sell 100 | | | | unique distinction. It can be extremely risky or |
| shares of the underlying stock to the buyer, | | | | extremely conservative, depending upon whether |
| potentially at a striking price far below current | | | | you also own 100 shares of the stock at the time |
| market value. The decision to exercise is the buyer's, | | | | you sell the call. |