Call Option
A contract giving the right, but not the obligation, to buy an asset at a set price before expiration.
Also called: call · calls · long call
In plain language
A call buyer pays a premium for the right to buy at the strike price. If the asset finishes above the strike by more than the premium paid, the trade is profitable.
The maximum loss for a call buyer is the premium. That cap is genuine, which makes calls a defined-risk way to express an upside view.
The seller of the call takes the other side: they collect the premium and accept the obligation to deliver at the strike, with losses that grow as price rises.
Seen on a chart
Why it matters
Because the maximum loss is known upfront, the premium paid is your risk per contract — which makes position sizing on long options unusually clean.
Common mistakes
- Treating the capped loss as low risk. Options routinely expire worthless, and 100% losses are common.
- Buying short-dated out-of-the-money calls where time decay dominates the outcome.
- Being right on direction but losing because the move arrived too slowly.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A contract giving the right, but not the obligation, to sell an asset at a set price before expiration.
The price at which an option contract can be exercised.
The price paid for an options contract.
The date an options contract ceases to exist.
How much an option’s price moves for a $1 move in the underlying.