Options & derivatives
Call option
The right to buy an asset at a fixed price before a set date.
How it works
A call gains value as the underlying rises above the strike price. The most a buyer can lose is the premium paid.
Selling a call without owning the underlying — a naked call — has theoretically unlimited loss, because there is no ceiling on how high a price can go.
Worked example
A $105 call costing $3 with the share at $100 breaks even at $108. Below $105 at expiry it expires worthless and the $3 is lost.
Related terms
- Put optionThe right to sell an asset at a fixed price before a set date.
- Strike priceThe price at which an option holder can buy or sell the underlying asset.
- Covered callSelling a call option on shares you already own, to collect premium in exchange for capping your upside.
- In the moneyWhether exercising an option now would produce a gain.
- PremiumThe price paid for an option, made up of intrinsic value plus time value.
Mentioned in
More in Options & derivatives
- Cash-secured put
- Backwardation
- Contango
- Assignment
- Contract for difference
- American and European options
- Delta
- Volatility crush
All 30 Options & derivatives terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.