Call Options Explained

A call option gives you the right to buy 100 shares of a stock at a specific price (strike) before expiration.

How Call Options Work

Buying a Call

  • You pay: Premium
  • You receive: Right to buy at strike
  • You profit: When stock rises above strike + premium
  • Max loss: Premium paid

    • Selling a Call (Covered Call)

  • You receive: Premium
  • You have: Obligation to sell at strike
  • You profit: When stock stays below strike
  • Max profit: Premium received

    • Call Option Pricing

    Call premiums are affected by:

  • Stock price - Higher stock = higher call value
  • Strike price - Lower strike = higher call value
  • Time to expiration - More time = more value
  • Volatility - Higher IV = higher premium
  • Interest rates - Higher rates = slightly higher calls

    • Example: TSLA Call Option

    Stock Price: $250 Strike: $260 Premium: $8.00 Expiration: 30 days

    Break-even: $260 + $8 = $268

  • TSLA at $270: Profit = ($270 - $268) × 100 = $200
  • TSLA at $250: Loss = $800 (premium paid)