What is a Call Option?

A call option is a financial contract that gives you the right, but not the obligation, to buy a stock at a specific price (called the strike price) before a certain date (the expiration date).

How Does a Call Option Work?

When you buy a call option, you're making a bet that the stock price will go up. Here's how it works:

You pay a premium: This is the price of the option contract
You get a strike price: The price at which you can buy the stock
You have an expiration date: The last day you can exercise the option

Examples of Options Contracts: Call Option Example

Example: You buy a call option on Apple stock with:

Strike price: $150
Expiration: 30 days from now
Premium: $5 per share (x100 shares = $500 total)

If Apple's stock price rises to $160 before expiration, you can buy it at $150 (saving $10 per share) or sell the option for a profit.

In the Money vs Out of the Money Meaning

Understanding these terms is crucial for options trading:

In the Money (ITM): When the stock price is above the strike price for a call option. Your option has intrinsic value.
Out of the Money (OTM): When the stock price is below the strike price for a call option. Your option only has time value.
At the Money (ATM): When the stock price is at or very near the strike price.

How to Calculate Options Premium

The options premium (price) is determined by several factors:

Intrinsic Value: The difference between stock price and strike price (if in the money)
Time Value: The additional premium based on time until expiration
Volatility: Higher volatility = higher premiums
Interest Rates: Small but measurable impact

Buy Call Option Tutorial: Getting Started

Open an options trading account online with a broker that offers options trading
Get approved for options trading (usually requires completing a brief questionnaire)
Learn how to read an options chain - the table showing available options
Choose your stock and decide on strike price and expiration date
Place your order and pay the premium

When to Use Call Options

Call options are best used when:

You're bullish on a stock but don't want to buy the shares outright
You want to leverage your capital (control more shares with less money)
You want to limit your risk to the premium paid
You're implementing options trading simple strategies like covered calls

Learn More

Ready to dive deeper into options trading? Check out these resources:

Disclaimer: Options trading involves significant risk and is not suitable for all investors. This content is for educational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor before making investment decisions.