Call option
TradingDefinition
A contract that gives you the right to BUY 100 shares of a stock at a pre-set price (the strike price) before a deadline (expiration). You buy a call when you think the stock will go up.
Your maximum loss is what you paid for the contract (the premium). Your maximum gain is unlimited because the stock could rise forever. Traders use calls to speculate with leverage, or as a cheaper way to bet on a stock than buying 100 shares outright.
Your maximum loss is what you paid for the contract (the premium). Your maximum gain is unlimited because the stock could rise forever. Traders use calls to speculate with leverage, or as a cheaper way to bet on a stock than buying 100 shares outright.
Example
SPY (the S&P 500 ETF) is trading at $520. You buy a call with a $525 strike price that expires in two weeks, for $4 per share ($400 per contract). If SPY jumps to $540 by expiration, your option is now worth $15 per share ($1,500 per contract), a return of about 275% on what you paid.
Related tool
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