What is a call option
A call option is a contract that gives its buyer the right, but not the obligation, to buy an underlying asset at a fixed price (the strike price) on or before a set date (the expiry date). The buyer pays a premium to the seller (the writer) for this right.
A call option is a type of derivative. Its value depends on the price of something else, such as a share, an index, a commodity or a currency pair.
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Worked example
This example uses letters instead of real prices:
- K is the strike price.
- P is the premium paid per unit of the underlying.
- S is the market price of the underlying at expiry.
| Price at expiry | What the buyer does | Result per unit |
|---|---|---|
| S above K | Exercises: buys at K, asset is worth S | S − K − P |
| S equal to or below K | Lets the option expire | Loss of P |
The break-even price at expiry is K + P. The buyer's maximum loss is the premium. The seller keeps P when the option expires unused. If the price rises above K, the seller must deliver at K, so an uncovered (naked) call writer faces a loss with no fixed limit. To get the size of a real position, multiply the per-unit result by the contract size.
Options can lose value fast. If you trade them with borrowed money (leverage), losses can be larger than you expect. See risk management.
Call vs put option
| Call option | Put option | |
|---|---|---|
| Right to | Buy at the strike | Sell at the strike |
| Gains in value when the underlying | Rises | Falls |
| Buyer's maximum loss | Premium | Premium |
Formal definition and edge cases
- Exercise style. An American-style call can be exercised on any day up to expiry. A European-style call can be exercised only at expiry.
- Settlement. At exercise, the buyer either receives the asset or receives the cash difference. See cash vs physical settlement.
- Moneyness. A call is in the money when the price is above the strike, at the money when the price is near the strike, and out of the money when the price is below the strike.
- Premium. The premium has two parts. Intrinsic value is the amount by which the price is above the strike, or zero. Time value is the rest, and it shrinks as expiry approaches.
- Delta. Delta shows how much the option price moves when the underlying moves.
- Covered call. A covered call is written by someone who already holds the underlying asset. This caps their gain but removes the open-ended loss of a naked call.
- Other uses of "call". A callable bond gives the issuer the right to repay early. A margin call is a broker's demand for more funds. Neither is a call option.
Where you see the term
- Option chains on exchange platforms list calls and puts by strike and expiry, with columns for bid, ask, volume and open interest.
- Market news reports figures like "call open interest" or the put-call ratio as signs of positioning.
- Account statements from exchange brokers show option trades with the strike, the expiry and a C (call) or P (put) code.
Spot forex and CFD accounts usually do not offer listed options. Check the instrument list in the Exness personal area or on the official site for what is offered.
Related terms
Frequent questions
What does a call option mean in simple words?
It is a paid right to buy something later at a price fixed today. You are not obliged to use that right.
Is the buyer forced to buy at expiry?
No. The buyer exercises only if it pays off and otherwise lets the option expire, losing the premium.
Who carries more risk, the buyer or the seller of a call?
The buyer can lose at most the premium. A seller without the underlying asset can lose an amount with no fixed limit if the price keeps rising.
Is options trading a way to make steady income?
No. Options are speculative, premiums can go to zero, and losses can be fast.
