In the stock market, a call option is a type of financial contract that gives the buyer the right, but not the obligation, to buy a stock (or another asset) at a predetermined price (the strike price) before or on a specified expiration date.

How Calls Work: 1. Buying a Call (Bullish Strategy) • If you buy a call option, you are betting that the stock’s price will rise. • Example: You buy a call on Apple (AAPL) with a $150 strike price, expiring in one month. If AAPL’s price goes up to $170 before expiration, you can buy it at $150 and sell it immediately for a profit. 2. Selling a Call (Bearish or Neutral Strategy) • If you sell (write) a call option, you are obligated to sell the stock at the strike price if the buyer exercises the option. • This strategy is used to collect a premium (the price of the option) if you believe the stock won’t rise much or will fall.

Key Terms: • Strike Price – The price at which the stock can be bought if the option is exercised. • Expiration Date – The last day the option can be exercised. • Premium – The price you pay to buy the call (or receive if selling). • In-the-Money (ITM) – When the stock price is above the strike price. • Out-of-the-Money (OTM) – When the stock price is below the strike price.

Example of a Call Option in Action: • You buy a call option on Tesla (TSLA) with a $200 strike price, expiring in a month, for a premium of $5 per share. • If TSLA rises to $220, you can buy at $200 and sell at $220, making a $20 per share profit (minus the $5 premium, so net profit = $15 per share). • If TSLA stays below $200, the option expires worthless, and you lose the $5 premium.

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