What is a Call Option?

A call option gives the buyer the right, but not the obligation, to “buy” the underlying asset at a predetermined strike price on or before expiry. For example, suppose a trader buys a call option on a stock with:

• Strike Price: ₹1,000
• Premium: ₹40 per share
• Lot Size: 100 shares
• Total Premium Paid: ₹4,000 (₹100 shares x ₹40 per share)

If the stock price rises to ₹1,100 at expiry, the call has an intrinsic value of ₹100 per share. In this case, the potential profit could be ₹6,000 {[(₹1,100 – ₹1,000) – ₹40] x 100}.

Whereas, if the stock price remains at ₹1,000 or below at expiry, the option expires worthless, and the trader loses the ₹4,000 premium paid. In this example, the “break-even” price is ₹1,040 (calculated as the strike price plus the premium).

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