Buying a call is the simplest bullish options trade there is, and for most people it’s the first one they ever place. You pay a premium for the right to buy 100 shares at a fixed price, and if the stock climbs past that price before expiration, you profit. If it doesn’t, the most you can lose is what you paid.
How a long call works
When you buy a call, you get the right, but not the obligation, to buy 100 shares of the stock at the strike price any time before the expiration date. The price you pay for that right is the premium.
- If the stock finishes above the strike plus what you paid, you make money.
- If it finishes below the strike, the call expires worthless and you lose the premium.
- In between, you get some of your premium back but still lose money overall.
Max profit, max loss and break-even
| Long call | |
|---|---|
| Max profit | Unlimited: the higher the stock goes, the more the call is worth |
| Max loss | The premium you paid |
| Break-even at expiration | Strike price + premium paid |
Why buy a call instead of the stock?
Mostly because it’s cheaper. If you like Tesla or Apple but don’t want to put tens of thousands of dollars into 100 shares, a call gives you similar upside for a fraction of the cost.
- Leverage. A small move in the stock can mean a big percentage move in the option.
- A known worst case. You can’t lose more than the premium, no matter how far the stock falls.
- Flexibility. You can buy a few weeks out for a short-term idea or a year or more out for a longer one.
Worked example
Say you’re bullish on Meta ($META), trading at $350. You buy a $360 call expiring in two months for $15 a share, which is $1,500 for one contract.
- Break-even: $360 + $15 = $375 at expiration.
- META rises to $400: the call is worth $40 a share ($4,000), a $2,500 profit.
- META stays at $350: the call expires worthless and you lose the $1,500.
- META drops to $300: you still lose only the $1,500. Owning 100 shares instead would have cost you $5,000.
The $2,500 isn’t a cap, either. Every dollar META rises above $375 adds another $100 to the profit.
Another quick one: Tesla ($TSLA) at $250, and you buy a $260 call three months out for $10 ($1,000). If Tesla gets to $300, the call is worth $40 ($4,000), a $3,000 profit. If Tesla is below $260 at expiration, you’re out the $1,000.
When a long call makes sense
- You’re bullish and expect a meaningful move up, not just a slow drift.
- You expect that move to happen before expiration.
- You want upside exposure without tying up the cash it would take to buy the shares.
What can go wrong
- Time decay. An option loses a little value every day. If the stock takes too long to move, you can be right about the direction and still lose money.
- Paying too much for volatility. When implied volatility is high, as it often is before earnings, calls are expensive, and that premium can disappear even if the stock rises.
- The break-even is higher than it looks. The stock has to clear the strike plus the premium before you make a cent.
Tips
- Pick the strike on purpose. Out-of-the-money calls are cheaper and more leveraged, but they need a bigger move. At-the-money calls cost more and are more likely to pay off.
- Buy more time than you think you need. Short-dated calls are cheap for a reason. Extra weeks cost less than being right too late.
- Size it as if it goes to zero. Plenty of long calls do. Only put in what you can afford to lose completely.
Want to see the payoff for your own numbers? The options profit calculator charts it for you.