Trading term

What is Call option?

A call option is a contract giving the buyer the right — but not the obligation — to buy an asset at a fixed 'strike' price before a set expiry date. Call buyers are betting the price will rise; their risk is capped at the premium paid, while the potential profit is open-ended.

When you buy a call, you pay a premium for the right to purchase 100 shares (per contract) at the strike price any time before expiration. If the stock rises well above the strike, that right becomes valuable — you can buy low (at the strike) and sell high (at market), or simply sell the now-pricier option. If the stock stays below the strike, the right is worthless and you let it expire, losing only the premium you paid.

The appeal is asymmetry and leverage. Your maximum loss is the premium — known and capped — while your upside grows dollar-for-dollar with the stock above the breakeven (strike + premium). A small premium controls 100 shares, so a modest move can produce an outsized percentage return. The catch is time: options expire, and the premium decays as expiry nears (theta), so you need the move to happen before the clock runs out. Sellers of calls take the opposite side, collecting the premium but taking on the risk.

Long call — the payoff at expiry
$0 P&LprofitlossStrike $50break-even $52underlying price at expiry →Long call · max loss = $2 premium, upside open-ended

Below the $50 strike the call expires worthless — you lose only the $2 premium. Above break-even ($52) profit grows dollar-for-dollar with the stock: capped loss, open-ended upside.

For example

You buy a $50 call for a $2 premium ($200 per contract). If the stock rises to $60 by expiry, the call is worth $10 — an $8 profit per share ($800), a 4× return on the $200 paid. If the stock stays at or below $50, you lose the $200 premium and nothing more.

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Why it matters to you

A call option is the cleanest way to make a leveraged, defined-risk bet that a price will rise — you know your maximum loss (the premium) up front, while keeping open-ended upside. That asymmetry is why calls are a core building block of options trading, from simple speculation to complex hedged strategies.

⚠ Time is working against you

The classic beginner mistake is buying calls and forgetting they expire. Even if you're right about the direction, a call can lose money if the move is too slow — time decay (theta) erodes the premium every day, accelerating near expiry. Being right on direction but wrong on timing still loses. Buy enough time.

Frequently asked questions

What is a call option?

A call option is a contract giving its buyer the right, but not the obligation, to buy an asset at a fixed strike price before expiry. Call buyers profit if the price rises above the strike plus the premium paid; their risk is limited to that premium, while the upside is open-ended.

When do you buy a call option?

You buy a call when you expect the underlying to rise before expiry. It offers leveraged, defined-risk upside — a small premium controls 100 shares. Traders use calls to speculate on a move, gain exposure with less capital than buying shares, or as part of hedged strategies.

What is the maximum loss on a call option?

For the buyer, the maximum loss is the premium paid — no more, no matter how far the stock falls. That capped, known downside is a key attraction. (The seller of a naked call, by contrast, faces theoretically unlimited risk if the stock soars.)

What's the difference between a call and a put?

A call gives the right to buy at the strike and profits when the price rises; a put gives the right to sell at the strike and profits when the price falls. Calls are the bullish side, puts the bearish side. Both cap the buyer's loss at the premium paid.

Related terms

Cash-secured putA cash-secured put is an options strategy where you sell a put option while setting aside enough cash to buy the stock if you're assigned. You collect the premium as income; in exchange, you agree to buy the stock at the strike if it falls there. It's a way to get paid to buy a stock you want at a lower price.Covered callA covered call is an options strategy where you own 100 shares of a stock and sell a call option against them. You collect the premium as income; in exchange, you cap your upside at the strike. It's a popular way to generate income on shares you're happy to hold or sell.DeltaDelta measures how much an option's price moves for each $1 change in the underlying. A delta of 0.60 means the option gains about $0.60 if the stock rises $1. It ranges from 0 to 1 for calls (0 to −1 for puts) and doubles as a rough probability the option finishes in the money.Exercise & assignmentExercise is when an option holder uses their right to buy (call) or sell (put) the underlying at the strike; assignment is when the option seller is chosen to fulfil that obligation. Exercise is the buyer's action; assignment is what happens to the seller on the other side of it.
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