This is the price that it costs to buy options.
Using our 50 XYZ call options example, the premium might be $3 per contract.
So, the total cost of buying one XYZ 50 call option contract would be $300 ($3 premium per contract x 100 shares that the options control x 1 total contract = $300).
How much does a call option cost?
Calls with a strike price of $50 are available for $5 per contract and expire in six months. In total, one call costs $500 (1 call x $5 x 100 shares). The graph below shows the buyer’s profit on the call at expiration with the stock at various prices.
What happens when you buy a call option?
When you buy a call, you pay the option premium in exchange for the right to buy shares at a fixed price by a certain expiration date. Investors most often buy calls when they are bullish on a stock or other security because it affords them leverage. As you can see, the payoff for each investment is different.
What does it mean to buy a call option?
Definition: A call option is an option contract in which the holder (buyer) has the right (but not the obligation) to buy a specified quantity of a security at a specified price (strike price) within a fixed period of time (until its expiration). For stock options, each contract covers 100 shares.
How do you value a call option?
Calculate call option value and profit by subtracting the strike price plus premium from the market price. For example, say a call stock option has a strike price of $30/share with a $1 premium and you buy the option when the market price is also $30. You invest $1/share to pay the premium.