Call Option

An option giving the buyer the right to purchase 100 shares at the strike price before expiration — used to profit from rising prices or to sell ("write") for income against shares already owned.

A call option gives its buyer the right to buy 100 shares at the strike price regardless of where the market price is at the time. If a stock trades at $80 and you hold a call with an $85 strike, you can buy at $85 — which only makes sense if the stock has risen above $85. Below $85, the call expires worthless and you lose the premium.

Call buyers profit when the stock rises far enough above the strike to recoup the premium paid plus any transaction costs. Call sellers (writers) profit when the stock stays below the strike — they keep the premium and have no further obligation. The seller of a covered call already owns the underlying shares; if the call is exercised, they sell those shares at the strike price.

The leverage in call options is their defining characteristic: a 10% move in the stock might produce a 100% gain or loss in the option, depending on its strike relative to the current price and the time remaining. This leverage makes calls appear to be speculation tools, but selling calls against an existing stock position — the covered call strategy — is a conservative income-generation technique used widely by both retail investors and institutional funds.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.