What is Call Option?
A call option gives the holder the right to buy 100 shares of the underlying stock at the strike price before the expiration date. You profit when the stock price rises above the strike price.
Call Option Explained
Buying calls is a bullish strategy with limited risk (you can only lose the premium paid) but potentially unlimited reward. Selling calls (covered or naked) generates income but carries different risk profiles. The breakeven price for a call buyer is the strike price plus the premium paid.
Real-World Example
You buy a $50 strike call on XYZ for $2.50 per share ($250 total). At expiration, XYZ is at $58. Your call is worth $8.00 ($58 - $50), netting you $5.50 per share ($550 total) — a 120% return. If XYZ is below $50, you lose your $250.
Related Terms
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