What Is a Call Option?
A call option gives its buyer the right, but not the obligation, to buy 100 shares at a set price before a set date. How calls work, the buyer's and seller's results, and the risks, with a worked example.
In one sentence
Call option. An option that gives its buyer the right to buy the underlying asset at the strike price.
How it works
An option is the right to buy or sell a specified amount of an underlying interest, such as a company's shares, at a fixed price, by exercising the option before a specified expiration date. For most options on shares, one contract covers 100 shares. The buyer pays a price, the premium; the seller, called the writer, receives it, and in exchange accepts the obligation to sell if the holder chooses to exercise.1 A call is the right to buy.
| Strike price | $55 |
|---|---|
| Premium | $2.00 a share, or $200 for the contract |
| Break-even at expiration | $55 + $2 = $57 |
| Share price $60 at expiration | ($60 − $55 − $2) × 100 = $300 profit |
| Share price $55 or below | The call expires worthless: −$200 |
A 20% rise in the shares made 150% on the premium; no rise at all lost all of it. That's the leverage that makes options attractive and dangerous.
The seller's side
Whoever sold that call collected $200 and owes the shares at $55 if the call is exercised. If the shares rise to $80, a seller who doesn't own them faces a loss of $2,300 on the contract, and the higher the price goes, the bigger the loss.
Learn it properly
- Calls and PutsDerivatives (depth track) · Free
- Options: A First LookPart 2: What You Can Own
Notes and sources
- The Options Clearing Corporation. Characteristics and Risks of Standardized Options. Checked 2026-10-13. Back to text