Definition
A call option is a financial contract that gives the buyer the right, but not the obligation, to purchase an underlying asset at a predetermined strike price before or at expiration. Investors buy calls when they expect the asset price to rise, as they can profit from the difference between the market price and the lower strike price.
Formula
Call Profit = Max(0, Stock Price - Strike Price) - Premium Paid
Example
You buy a call option on AAPL with a $150 strike price for $5 premium. If AAPL rises to $170, your profit is ($170 - $150) - $5 = $15 per share.
FAQ
What is Call Option?
A contract giving the holder the right to buy an asset at a specified price.
How do you calculate Call Option?
A common formula for Call Option is: Call Profit = Max(0, Stock Price - Strike Price) - Premium Paid
Why is Call Option important?
Call Option helps investors evaluate options and make more informed decisions.