Call Option
A call option gives its buyer the right, but not the obligation, to buy an asset at a fixed price, the strike price, until or on a set expiry date. The buyer pays a premium for this right; the seller collects it and takes on the obligation.
The moving parts
Every call has an underlying asset, such as BTC or ETH, a strike price, an expiry date and a premium. If the asset ends above the strike at expiry, the call is in the money and worth the difference. If it ends at or below the strike, the call expires worthless and the buyer loses the premium.
European-style options, which are common for crypto on major options venues, can only be exercised at expiry. Many crypto options are cash-settled, meaning you receive the value in money or crypto rather than taking delivery of the coins.
A worked example
Say ETH trades at 3,000 dollars and you buy a call with a 3,300 strike expiring in one month for a premium of 100 dollars. If ETH ends at 3,600, the call is worth 300 dollars, so your profit is 200 after the premium. If ETH ends at 3,350, the call is worth 50 and you lose 50 overall. If ETH ends below 3,300, you lose the full 100 premium. Your break-even is strike plus premium: 3,400.
Why people buy and sell calls
Buyers use calls to gain upside exposure with a known maximum loss, the premium. Sellers, also called writers, collect premiums as income, often by selling calls against coins they already hold, a strategy known as a covered call. In return they give up gains above the strike.
Risks
Most of a call's value can evaporate as expiry nears if the price does not move enough, a process called theta decay. Premiums can be expensive when implied volatility is high. Sellers of uncovered calls face theoretically unlimited losses if the price soars. Options pricing involves several moving factors, and many retail buyers lose the premium because they are right about direction but wrong about timing or size.
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Frequently asked questions
What is the most I can lose buying a call?
The premium you paid, plus fees. You are never forced to exercise, so a buyer cannot lose more than that.
Do I have to own the coin to buy a call?
No. Buying a call requires only the premium. Selling a covered call means holding the coin; selling an uncovered call requires margin.
What does in the money mean?
A call is in the money when the asset's price is above the strike price, so exercising it would have value.
Related terms
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