I am new to options trading and im trying to gain some understanding. I was hoping someone could clarify something for me. I understand a call option as a contract that I buy that allows me to buy the stock at the strike price on or before the expiration date.
Now, I wanted to check this out in real time and went on TD ameritrade to get the option chain for GM. Now, the 2.00 call for 5/16 is at .30 (+GMEW). The stock is currently trading around 1.85.
The way I understand it, it will cost me 30.00 for 1 contract. So this is really making a bid that the stock will get above 2.30, right? I dont see why I would want to spend 230 for 200 dollars worth of stock. This option is betting on a better than 25 percent gain in a month.
I think I have this correct, just wanted to double check.