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Call Option
A contract giving the holder the right to buy an asset at a specified price before expiration.
Call Option
A call option gives the buyer the right, but not the obligation, to purchase a stock at a fixed price (strike price) within a set time period.
How it works
- You pay a premium to buy the call option
- If the stock rises above the strike price, your option gains value
- You can exercise (buy the stock at strike) or sell the option for profit
- If the stock stays below the strike, the option expires worthless
Example
- Buy a $50 call for $3 premium, expiring in 30 days
- Stock rises to $60 → option is worth at least $10 (intrinsic value)
- Your profit: $10 − $3 = $7 per share ($700 per contract of 100 shares)
Key terms
- In the money (ITM): Stock price > strike price
- At the money (ATM): Stock price ≈ strike price
- Out of the money (OTM): Stock price < strike price
Risk profile
- Maximum loss: The premium paid
- Maximum gain: Theoretically unlimited (stock can rise indefinitely)
- Breakeven: Strike price + premium paid
Key Takeaways
- Context matters when interpreting any financial metric.
- Combine multiple data points for informed decisions.
- Continue learning to build investment knowledge.
Quick Reference
Category
Derivatives
Difficulty
Beginner
Reading Time
1 min
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Where You'll See This
This concept appears throughout stock detail pages and financial data.