I am trying to learn everything about options, I have spent hours studying the basics of options but still, there are some doubts that no one has clarified so far.
Some websites state that options provide leverage, after the stock moves above breakeven price, the gain is multifold higher than what you have got by purchasing equity shares, which is nothing but leverage. Recently I asked the same question to AI chatbot but it said that you have to pay the premium + price of the stock.
So what's right? When I purchase 1 contract of a call option (which usually controls 100 shares), do I have to pay just the premium amount for 100 shares or do I have to pay premium as well as price of 100 shares when exercising/executing the contract option before expiry? I know I don't need to exercise the option and let it expire if the price doesn't move as speculated
If I have to pay the price of the stock then please explain how do options provide leverage ? I have seen numerous posts by options day traders boasting about their profits. How do option day traders manage to make profits if they have to pay for the stock price as well? I mean their trade would be profitable only if the stock crosses above breakeven price which is usually 0.5% to 4%.
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