In this article I am explaining you the call option by giving you an example.
Buy a Call:
It is expected by the buyer that the price may go above his chosen ‘strike price’. A premium is being paid by him that will never be refunded, and he possess the right to exercise the option at the strike price, what it means is that he can choose to buy the stock at the strike price. If the price goes up enough as anticipated by the buyer then the buyer pays the strike price to actually purchase the stock. After purchasing, he can then choose to either hold the stock, or sell it to realize his profit.
Write a Call:
The premium is received by the writer. If it is decided by the buyer that he will exercise the option, then the writer has the obligation to sell the stock at the strike price. If the buyer does not exercise the option, then the writer still gains profits in the amount of the premium.
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‘Trader A’ (Call Buyer) have purchased a Call contract in order to buy 100 shares of XYZ Corp from ‘Trader B’ (Call Writer) at $50/share. The current price is $45/share, and premium of $5/share is being paid by ‘Trader A’ pays. If right before expiration the share price of XYZ stock rises to $60/share , then ‘Trader A’ is now able to exercise the call by buying 100 shares for $5,000 from ‘Trader B’ and sell them at $6,000 in the stock market.
