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What is a Call Option?
Academy->What is a Call Option
A call option is an agreement that allows someone to buy shares at a fixed price before the option expires. Whether that happens depends on how the stock price moves. Call options are used in many different trading strategies, including buying calls to speculate on higher stock prices and selling covered calls to generate income.
Every call option has:
- A stock.
- A strike price.
- An expiration date.
- A premium.
If the option is exercised, the shares are bought at the strike price written into the contract. The strike price never changes. Only the stock price changes.
Buying a Call Option
When you buy a call option, you're hoping the stock price rises. If it does, the option may become more valuable before it expires. The most you can lose is the premium you paid for the option.
Selling a Covered Call
When you sell a covered call, you already own the shares. In return for accepting the possibility of selling those shares at the strike price, you receive the option premium. Many investors use covered calls to generate additional income from stocks they already own.
OptionLogic in Practice
OptionLogic helps traders compare covered call opportunities using live option chain data.
Instead of looking at premium alone, you can compare ROI, annualized ROI, market structure, and other information before selecting a strike price.
OptionLogic Dashboard displaying covered call opportunities (Left Centre), with strike prices, premiums, ROI, and expiration dates.
Frequently Asked Questions
Does buying a call option mean I own the stock?
No.
Buying a call gives you the opportunity to buy the shares, but you do not own them unless the option is exercised.
Do I need to own shares to buy a call option?
No.
You can buy a call option without owning the underlying shares.
Do I need to own shares to sell a covered call?
Yes.
A covered call is backed by shares you already own.
Why do traders buy call options?
Some traders buy calls because they expect the stock price to rise before the option expires.
Why do investors sell covered calls?
Many investors sell covered calls to generate income from shares they already own.
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