Call Option
A contingent right for the holder and obligation for the writer, with payoff and risk determined by contract terms and the full position.
A call option gives the holder the right, but not the obligation, to buy an underlying asset at the strike price under specified exercise and settlement terms. The writer may be assigned. Contract multiplier, style, dividends, borrow, rates, liquidity, and expiration affect value and outcome.
Frequently Asked Questions
Does a call buyer profit whenever the stock rises above the strike?
Not necessarily. At expiration, profit also depends on premium and costs, so the break-even for a simple long call is commonly strike plus premium per unit. Before expiration, time value and implied volatility also matter.
Is long-call maximum loss always the premium?
For a fully paid standalone long call, loss is generally limited to premium and transaction costs. Exercise, financing, taxes, multi-leg positions, or an associated underlying position can change total exposure.
When can early exercise matter?
For American-style calls, early exercise may be considered around dividends, deep intrinsic value, borrow constraints, or very low remaining time value. It is not automatically optimal, and exercising gives up any remaining time value.
Is a covered call low risk?
It still bears the underlying downside, caps upside above the strike, and creates assignment, tax, and opportunity-cost risk. Premium income does not protect against a large stock decline.