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What is a call option?
A call option is a contract giving its buyer the right, but not the obligation, to buy an asset at a fixed strike price on or before an expiry date. The buyer profits if the price rises far enough above the strike to cover the premium paid.
What it means for you
A call buyer's maximum loss is the premium, and the price has to rise above the strike plus the premium just to break even. A call seller keeps the premium but must sell at the strike however high the price goes, so a call sold without holding the asset can mean unlimited loss.
How it works
A call is in the money when the strike is below the current price, out of the money when it is above, and at the money when they are equal. The writer is obliged to sell to a buyer who exercises. In the SEC's example, a call with a 70 strike bought for a 2.20 premium breaks even at 72.20. If the price is below the strike at expiry, the call expires worthless and the premium is lost. An option sold without an offsetting position in the underlying is called naked or uncovered.
An example
Say a coin trades at $95 and you pay a $5 premium for a call with a $100 strike. At expiry the coin is at $120: the call is worth $20, a $15 profit. If the coin is at $98, the call expires worthless and you lose the $5.
Sources: SEC Investor Bulletin: An Introduction to Options, CFTC Glossary · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.