Call Option

A contract giving the buyer the right, but not the obligation, to buy an asset at a set price before or on a set date.

Example

A call with strike 105 lets its holder buy 100 shares at 105 each until expiry.

Important

Buying a call risks only the premium. Selling one without owning the shares creates a loss with no fixed limit.

Related terms

  • Put Option — A contract giving the buyer the right, but not the obligation, to sell an asset at a set price before or on a set date.
  • Strike Price — The price at which an option holder can buy (for a call) or sell (for a put) the underlying asset.
  • Option Premium — The price paid by an option buyer to the seller for the contract.

Lessons that explain it

  • A contract about a price, not a piece of anything — An option or future is an agreement whose value depends on another asset. You own a right or an obligation with an expiry date, not a share of a business. (10 min)
  • Big percentages on a small bet, and most bets expire worthless — Option payoffs are lopsided: a bought option can multiply its premium or lose all of it, and the price usually has to move a long way just to break even. (12 min)

All 578 terms in the Investing glossary