Call Option
Also called: call
A contract that gives its owner the right to buy 100 shares at a set price by a set date.
A call option is a bet, or a tool, that pays off when a stock goes up. Owning a call gives you the right (not the obligation) to buy 100 shares at a fixed price, called the strike, any time before it expires. Selling a call means taking the other side: you collect cash now and take on the obligation to sell shares at the strike if the buyer exercises.
For example
You buy one $50 call on a stock trading at $48. If the stock rises to $60, you can still buy 100 shares at $50, a $10-per-share head start. If it never gets above $50, the call expires worthless and you lose what you paid for it.
Related terms
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