Call options are a fantastic way to generate cash flow and reduce basis on companies we already own. When we already own a company we call a call option a "Rule #1 Call Option." Let me briefly explain the call option definition.
What is a Call Option?
Essentially, a call option example is a coupon to get cheap milk. There's two sides to this coupon. There’s the grocery store, which is essentially selling the coupon at a very, very, cheap price and there's the buyer of the coupon who is getting a right to go buy this milk.
So, when we use the coupon between the store, the store has an obligation to sell the milk at a set price and the buyer of the coupon gets the right to buy that milk at a set price. That’s just a coupon and we’re used to using them all day long.