Chapter 06 · Section 6.1

Price Fluctuations

Options permit the trader to establish long or short positions that allow him to take advantage of future price fluctuations while minimizing the outlay of capital.
To profit from the purchase of a call option, a trader must not only correctly predict an increase in the price of the underlying asset, but also:

a) the magnitude of the price increase.
• b) the timing of the price increase.
  Yes. The price of the underlying asset must increase before the option expires. Both the increase in price and the timing of the increase in price are important. Continue
  c) the direction of the market overall.
  d) an increase in the interest rate.

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