Call Options
Buying a call: pay a premium to lock in the right to buy at the strike. Drag the price at expiration and watch the payoff curve "bend".
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
Every lesson has an interactive simulation you can drag and play, plus a quick quiz. Sign up free to use them and save your progress automatically. Here is the text version of this lesson.
Not sure yet? Try the first lesson (no sign-up needed)「What Is an Option?」。
Text version · Options Basics, lesson 3: “Call Options”
Buying a call: pay a premium to lock in the right to buy at the strike. Drag the price at expiration and watch the payoff curve "bend".
Call ≈ locking in a purchase price
Pay a premium for the right to buy at the strike price before expiration. The higher the stock goes, the more this right is worth.
Why the curve “kinks”
Below the strike you won't exercise, so the loss is fixed at the premium (the flat line); above the strike, every $1 rise makes $1 more (the sloped line).
Breakeven line: strike + premium
For a Call with a $100 strike and a $5 premium, the stock has to rise above $105 to start making money: that line is the breakeven. Between $100 and $105, it's already in the money but still losing.
Key takeaways
- A call has intrinsic value only when the stock is above the strike.
- Breakeven = strike + premium.
- A long call's maximum loss is the premium, and its potential gain is unlimited.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Drag the stock price at expiration from $80 to $160: the curve “kinks” at the $100 strike. To the left it's flat; to the right, every $1 rise makes $1 more.
- Set the premium to $5 and drag the stock to $103: it's already in the money, so why are you still down $2 per share?
- Keep the premium at $5 and look at the “Breakeven” card: how high does the stock need to go to avoid a loss? Then raise the premium: which way does the line move?
- Set the premium back to $5 and drag the stock to $118: how much does “×100 per contract” show? (It should be +$1,300.)
Quiz and explanations
- 1. You buy a $100-strike call for a $5 premium. At expiration the stock is $103. What's your P&L per share?
- Answer: −$2.Intrinsic value is $3; minus the $5 cost, that's a net loss of $2. Breakeven is $105.
- 2. What's the maximum loss on a long call?
- Answer: The premium.The worst case is not exercising and losing the premium.
- 3. You buy 1 call with a $50 strike for a $3 premium. At expiration the stock is $60. What's the P&L on this contract?
- Answer: +$700.Intrinsic value per share $10 − cost $3 = $7, × 100 shares = +$700.
Terms in this lesson
- breakeven (Breakeven): The underlying price at expiration where you neither make nor lose money.
- call option (Call): The right to buy the underlying at the strike price; the higher the stock goes, the more it's worth.
- intrinsic value (Intrinsic Value): What you'd get by exercising right now; for a call, max(stock price − strike, 0).
- in the money (ITM) (ITM): An option with intrinsic value, such as a call whose strike is below the stock price.
- premium (Premium): The price of an option, paid by the buyer to the seller; it's the most the buyer can lose.
- put option (Put): The right to sell the underlying at the strike price; the lower the stock goes, the more it's worth.
- strike price (Strike): The price written into an option contract at which you can buy or sell.
- option writer (Writer): The side that sells an option and collects the premium, taking on the obligation if the buyer exercises.