A call is an option contract which gives the owner the right to buy the underlying instrument at a designated price on or before a specified date.
A call option is in-the-money (ITM) when the strike price is below the current stock price. A call option is out-of-the-money (OTM) when the strike price is above the current stock price. A call option is at-the-money (ATM) when the strike price is equivalent to or near the current stock price.
Call buyers – When buying a call, the total risk is the amount which is paid for the option. Call buyers have the right to buy the underlying stock at the designated strike price until the expiration date. Exercising long call options is a choice to purchase the underlying stock at the strike price.
Call sellers – The seller of a call has the obligation to deliver the underlying stock at the strike price to whomever exercises their long call option. There is unlimited upside theoretical risk, and limited potential profits to the amount of premium collected. To offset a short call position, equivalent stock must be purchased, or the call can simply be bought back by the expiration date.
Intrinsic value – A call option has intrinsic value if the strike price can be subtracted from the current price of the underlying stock. Intrinsic value is the amount by which an option contract is in-the-money.
Extrinsic value – A call option has extrinsic value if the intrinsic value can be subtracted from the total call premium. Extrinsic value is also known as time value.
The opposite of a Call Option is a Put Option.
Return to the main options glossary page to learn more terms.
