What is a Call Option?

A call option is a contract you can buy or sell on a stock or ETF. 1 option controls 100 shares of stock.

A call option if bought gives you the right to call the stock from the market at the strike price of the contract. Buying a call option would be a bullish play; as you’d want the price of the stock or ETF to grow above your strike price so you could call 100 shares from the market at the lower strike price. * Buying the call sets floor – the break even would be the strike price you bought + the debit you paid. Buying an option enables you to only win if the stock moves correctly.

*Most traders would sell the now profitable option in lieu of actually executing the option and buying 100 shares at the strike price.

A call option if sold gives someone the right to call the stock from you at the strike price of the contract. Selling a call option would be a bearish option play – setting a ceiling for the stock. Selling an option enables you to win 2 ways. 1) when the stock stays at the same price or 2) when the stock moves in accordance with your position.

Calls are almost the exact opposite of puts – and  I prefer to sell them both and try to avoid buying them – unless were doing a vertical spread – in which case you buy a back up option to define your risk.