Call Option
A call option is a contract giving the buyer the right, but not the obligation, to buy 100 shares of the underlying at a fixed strike price before expiration.
A call buyer pays a premium for upside exposure: the call gains value as the underlying rises above the strike. One standard equity contract controls 100 shares, so a $1 move in the option is worth $100.
The buyer’s risk is capped at the premium paid; the seller (writer) takes the opposite side and is obligated to deliver shares if assigned.
Example. Buying one 100-strike call for $3.00 costs $300. If the stock finishes at $110, the call is worth $10.00 ($1,000) — a $700 gain before fees.
FAQ
What is the maximum loss on a long call?
The most a call buyer can lose is the premium paid — for a $3.00 call, that is $300 per contract.
Do you have to own the stock to sell a call?
No, but selling a call without owning the shares is a “naked” call with theoretically unlimited risk; covered calls sell against shares you already hold.
Related terms
See also: Bull Call Spread