Call Options

Buying one call option gives you the right, but not the obligation, to purchase 100 shares of a company's stock at a certain price (called the strike price) from the date of purchase until the third Friday of a specific month (called the expiration date).

People buy calls because they expect the underlying stock to go up.  If the stock does go up they make a profit either by selling the calls at a higher price, or by exercising their option (i.e., buy the shares at the strike price and sell at the current market price).

Call options are quoted in dollar terms, but they actually cost 100 times the quoted amount.  For example, a call option  quoted at $2.25 will actually cost $225.00.  The commission for buying options is usually around $1.50 per contract.

Long Call Option Payoff Graph