What it is
A call option is a financial contract that grants the buyer the right to purchase 100 shares of an underlying stock at a predetermined price, known as the strike price, on or before a specific expiration date. Investors typically buy call options when they anticipate the underlying stock's price will rise significantly above the strike price, allowing them to profit from the upward movement.
Call options are commonly used by investors to speculate on upward price movements or to hedge against potential increases in the cost of future stock purchases. If the stock price rises above the strike price before expiration, the option is "in-the-money" and can be exercised for a profit or sold to another investor. The value of a call option increases with the underlying stock price and implied volatility.
Why it matters
Call options offer a leveraged way to profit from rising stock prices but also carry significant risk, as they can expire worthless.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice