Call option
Also called: call, calls
A call option is a contract that gives its buyer the right, but not the obligation, to buy a stock at a set price (the strike) before or at a set date. Buyers profit when the stock rises above the strike by more than the premium paid.
A call is a bet that a price will rise, with a loss capped at the premium. If the stock ends below the strike, the call expires worthless and the buyer loses only what they paid for it.
Standard US stock options cover 100 shares per contract, so a quoted premium of $2 costs $200 per contract.
Formula
Payoff at expiry = 100 × max(0, price − strike)
Example
You buy one call with a $50 strike for a $3 premium ($300). The stock ends at $58. The call pays 100 × ($58 − $50) = $800, a $500 profit after the premium.
In Journey Shares
Once enough shares have traded, each profile gets calls and puts at set strikes, expiring on Fridays, settled in play money. →
Related terms
- Put option: A put option is a contract that gives its buyer the right to sell a stock at a set price (the strike) before or at a set date.
- Strike price: The strike price is the fixed price at which an option lets its holder buy (for a call) or sell (for a put) the underlying stock.
- Option premium: An option's premium is the price paid to buy it.
- Expiration date: An option's expiration date is the last day it can be used.
- In the money: An option is in the money when exercising it now would pay something: a call whose strike is below the stock price, or a put whose strike is above it.
Guides
Practise with $10,000 in play money
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