Alright kiddo, let’s play pretend with money and toys! 🎲💰
Imagine you really, really want a cool toy robot 🤖. But instead of buying it today, you make a special deal with the toy store. You say, “I’ll give you $1 now, and if I decide to buy the robot later, I get to buy it for $10 no matter what.”
That special deal is like a call option — you’re paying a little bit now to have the right to buy something later at a set price.
Now here’s where it gets fun! Let’s say later, the toy robot becomes super popular and the store raises the price to $15. But guess what? Because of your deal, you can still buy it for $10! That means you save $5, and since you only paid $1 to make the deal, you made a profit of $4! 🎉
But if the toy robot’s price doesn’t go up — maybe it stays at $10 or goes down to $8 — then your deal isn’t so great anymore. You might just say, “Nah, I don’t want to use my deal.” In that case, you lose the $1 you paid, but that’s it.
So, to make a profit on a call option, the price of the thing you want (like a toy or a stock) has to go higher than the deal price (plus what you paid for the deal).
It’s kinda like saying, “I bet this robot will be worth more later!” And if you’re right, you win some cookie money! 🍪💵
