Call Option
A call option gives its buyer the right, but not the obligation, to buy 100 shares of an underlying asset at a fixed strike price before the option expires.
Investors buy calls when they expect the price of the underlying asset to rise. If the stock climbs above the strike price, the call gains value. If it stays below the strike at expiration, the call expires worthless and the buyer loses the premium paid.
Example: a stock trades at $50. You buy one call with a $55 strike for a $2 premium, or $200 per contract. If the stock rises to $62 by expiration, the call is worth $7 per share ($62 minus $55), or $700, for a profit of $500. If the stock ends at $54, you lose the $200. The breakeven price is the strike plus the premium: $57.
The seller of a call receives the premium and must deliver shares at the strike if assigned. Selling calls against shares you already own is called a covered call; selling calls without owning the shares is a naked call and carries theoretically unlimited risk.
Calls offer leverage: a small move in the stock can produce a large percentage change in the option's price, in both directions.