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Call option

A contract giving the buyer the right, but not the obligation, to buy 100 shares at a set strike price before expiration.

Payoff of a long call at expiryA flat loss equal to the premium below the strike, turning upward at 45 degrees above it.Profit / loss per share08595115125Strike 105Max loss 3 — the premium paidBreakeven 108Profit keeps growingUnderlying price at expiry
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.

A call gains value when the underlying rises. The buyer pays a premium and can lose at most that premium. The seller collects the premium and takes on the obligation to deliver shares if assigned (see assignment).

Calls are used for leveraged bullish bets, for income when sold against stock (covered-call), and as building blocks in vertical-spreads.

Example: a stock is $100. You buy a $105 call expiring in 30 days for $2.00 ($200 per contract). At expiration the stock is $112: the call is worth $7, a $500 profit. At $104 it expires worthless and you lose $200.

Related: put-option, strike-price, premium, covered-call, delta

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