1. What it is
Pay a premium to buy one call option.
2. Why use it
Expect the stock to rise before expiration; participate in that rise with a limited initial cost.
3. How the numbers work
SPY · Teaching example · Reference price $500
All option legs have the same expiration. Premiums are per share. Each standard contract represents 100 shares.
| Side | Option type | Strike | Quantity | Premium |
|---|---|---|---|---|
| Buy | Call | 500 | 1 | 5 |
- Net premium
- −5 × 1 = -$5.00 × 100 = -$500.00
- Maximum expiration profit
- Theoretically unlimited
- Maximum expiration loss
- $500.00
- Expiration breakeven
- $505.00
Expiration scenarios
| Underlying at expiration | Profit / loss |
|---|---|
| 500 | -$500.00 |
| 505 | $0.00 |
Illustrative prices, before fees. Expiration payoffs exclude early assignment and changes in time value or volatility. Editing strikes keeps the entered premiums; no market quotes are fetched.
Explore this example ↗4. How it changes
A rising stock price and rising implied volatility generally help. Time passing generally hurts, with other factors unchanged.
5. What to watch for
Maximum loss: the premium paid. Maximum profit: theoretically unlimited, because the stock price has no fixed upper limit.
Getting the direction right may still lose money. The breakeven shown is for expiration; selling earlier also depends on remaining time and implied volatility. Holding through expiration can lead to automatic exercise.