A call option gives you the right to buy a stock at a fixed price before expiry. You want the stock to go UP.
Calls gain value when the stock rises, volatility expands, or there is still healthy time to expiry.
Think of it like paying a small booking fee to lock in today’s price of a flat. If the flat’s price rises, your locked-in price becomes a steal. If it falls, you walk away — you only lose the booking fee. The builder (the option seller) keeps that booking fee either way.
AAPL is at $200. You buy a 200 call for $6 premium. Breakeven at expiry = $206. Below $200, the call expires worthless and you lose $6 × 100 = $600. Above $206, every $1 higher is +$100 for you. At $220, the call is worth $20 — profit = $14 × 100 = $1,400.
A call is a contract that says: "I have the right to buy 100 shares of XYZ at ₹1,000 each, any time before 30 days." That ₹1,000 is the strike. It does not matter where the stock goes — your buy price is frozen at 1,000. You pay premium upfront for that right.
If the stock jumps to ₹1,200, your contract lets you still buy at ₹1,000 — a ₹200 discount per share × 100 = ₹20,000 of intrinsic value. If the stock falls to ₹900, nobody wants to buy at ₹1,000 when the market is at ₹900, so the contract becomes worthless. Higher stock = more valuable call.
Most retail traders never actually buy the shares. They sell the contract itself before expiry for a profit or loss. The option price rises and falls with the stock, so you can trade it like a leveraged bet on direction without ever owning shares.
Someone wrote that call and collected your premium. They are now obligated to deliver shares at ₹1,000 if you exercise. Their best case is the option expires worthless and they keep the premium. Their worst case is the stock rallies huge and they owe you the entire difference.
You paid premium upfront. Here is how each outcome plays out. Strike = 1,000, premium = ₹20.
The stock finished above your strike. Your call has intrinsic value equal to (spot − strike). Subtract what you paid in premium to get your net profit. Exercise (or just sell the option) and the cash difference is yours.
Stock expires at ₹1,100. Intrinsic = 100 − 20 premium = ₹80 profit per share. × 100 shares = ₹8,000 net profit.
Stock finished right at the strike. Intrinsic value is zero. Time value is also zero at expiry. You eat the full premium loss, because there is nothing to exercise — the locked-in price you have is no better than the market price.
Stock expires at ₹1,000. Intrinsic = 0. You lose the full ₹20 premium × 100 = ₹2,000.
The stock went the wrong way (or did not move enough). Nobody wants to buy at ₹1,000 when the market is cheaper. The contract dies and you lose 100% of the premium — but nothing more. That is the buyer’s protection: limited loss.
Stock expires at ₹950. Call is worthless. Loss = full ₹20 × 100 = ₹2,000. Capped.
You collected premium upfront. You are now obligated to deliver 100 shares at the strike if the buyer exercises.
The buyer would not exercise — why would they buy at ₹1,000 when the market is cheaper? The contract expires worthless and the obligation disappears. The premium you collected is yours, free and clear. This is what call sellers bet on.
Stock expires at ₹950. You keep the full ₹20 × 100 = ₹2,000 premium.
Intrinsic value at the strike is effectively zero. The buyer has nothing meaningful to exercise against you. You pocket almost the entire premium you collected.
Stock expires at ₹1,000. You keep close to the full ₹2,000 premium.
The buyer exercises. You must sell 100 shares at ₹1,000 even though the market price is higher — so you eat the gap. If you did not already own the shares (naked call), you must buy them at the market price to deliver, and the loss can be massive. Call selling has UNLIMITED theoretical risk above the strike.
Stock expires at ₹1,200. You owe ₹200 intrinsic per share − ₹20 premium = ₹180 net loss × 100 = ₹18,000 loss. And if the stock had gone to ₹1,500, the loss would keep growing.
If a call is exercised, the seller must hand over 100 shares of the real stock at the strike price, and the buyer pays cash for them. Example: a 1,000-strike call exercised means the seller delivers 100 shares and receives ₹1,00,000 — regardless of whether the market price is ₹1,200 or ₹800. Most retail traders never touch shares; they close the option contract before expiry for cash P&L. But the shares are what anchor the option’s price. This is why one call moving ₹1 usually equals ₹100 of real P&L — you are controlling ₹1,00,000 worth of stock with just a ₹2,000 premium. That leverage is the whole point.
See how well you understand the term before moving on.
1 A call option profits when the stock:
2 You buy a call with strike ₹1,000 for ₹20 premium. What is your breakeven at expiry?
3 What is the maximum loss when buying a call?
4 A call seller (writer) profits most when: