Call option

A contract giving the right, not the obligation, to buy 100 shares at a set price before it expires.

Definition

A call buyer pays a premium for that right and profits if the stock rises enough to more than cover the premium. The most a buyer can lose is the premium paid. The seller collects the premium and takes on the obligation to sell if assigned.

Formula

Long call breakeven at expiry = strike + premium paid

Example

Hypothetical exampleA call with a $100 strike bought for $3 breaks even at $103 at expiration. Below $100 it expires worthless and the loss is the $300 paid per contract.

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