Call Option
The right to buy at a set price: leveraged upside with loss capped at the premium.
A call option is the right to buy at a set strike before expiry. Buyers get leveraged upside with losses capped at the premium paid.
A call option gives the holder the right, never the obligation, to buy an asset at the strike price before expiry. Buyers profit when price rallies past strike plus premium; maximum loss is the premium. Sellers collect that premium and carry theoretically uncapped risk on naked calls.
How It Works
- Gains value as price rises above strike
- Buyer loss capped at premium, seller risk open
- Value splits into intrinsic plus time value
Trading Tips
Buy calls with enough expiry for the thesis to develop
Avoid weekly options unless scalping defined events
Selling naked calls is professional territory only
Call Option Example
Say shares trade $100 and you buy a $105 call for $3 instead of 100 shares for $10,000. Stock hits $115 and the call returns over 200% on $300 risked. Stock flat at $101 costs the full $300: leverage with a receipt.
How Traders Use Call Option
Use calls for high-conviction breakouts where shares tie too much capital. Give trades room with further-dated expiry, and never allocate more premium than a full loss allows.
Related Terms
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