Markets Home

Active trader

Hear from active traders about their experience adding CME Group futures and options on futures to their portfolio.

Find a broker

Search our directory for a broker that fits your needs.

CREATE A CMEGROUP.COM ACCOUNT:

MORE FEATURES, MORE INSIGHTS

Get quick access to tools and premium content, or customize a portfolio and set alerts to follow the market.
Market Data Home

Real-time market data

Stream live futures and options market data directly from CME Group.

E-quotes application

Access real-time data, charts, analytics and news from anywhere at anytime.

CME DATAMINE:

THE SOURCE FOR HISTORICAL DATA

Explore historical market data straight from the source to help refine your trading strategies.
Services Home

Uncleared margin rules

Understand how CME Group can help you navigate new initial margin regulatory and reporting requirements.

Calculate margin 

Evaluate your cleared margin requirements using our interactive margin calculator.
Education Home

Now live: ESG solutions

Manage the risk associated with renewable energies, environmental change and sustainable investments.

Create a CMEGroup.com Account: More features, more insights

Get quick access to premium educational content, including expert-led webinars, a real-time trading simulator, and more.
      Course Overview
      • Introduction to Options
      • Understanding Option Contract Details
      • Get to Know Underlying (Options on Futures)
      • What is Exercise Price (Strike)?
      • What is Expiration Date (Expiry)?
      • Explaining Call Options (Short and Long)
      • Explaining Put Options (Short and Long)
      • Understanding AM/PM Expirations
      • Learn About Exercise and Assignment
      • Understanding the Difference: European vs. American Style Options
      • Calculating Options Moneyness & Intrinsic Value
      • Understanding Options Expiration (Profit and Loss)
      • Introduction to Options Theoretical Pricing
      • Discover Options Volatility
      • Put-Call Parity
      • Options on Futures vs ETFs
      Introduction to Options
      You completed this course.Get Completion Certificate

      Explaining Call Options (Short and Long)

        • Also available in

        • 繁體中文
        • 简体中文
        • 한국어
        • עברית

      Video not supported!

      What is a Call Option?

      A call option is the right to buy the underlying futures contract at a certain price.

      Buying Calls

      When traders buy a futures contract they profit when the market moves higher. The call option has a similar profit potential to a long futures contract. When prices move upward the call owner can exercise the option to buy the future at the original strike price. This is why the call will have the same profit potential as the underlying futures contract.

      However, when prices move down you are not obligated to buy the future at the strike price, which is now higher than the futures price because that would create an immediate loss.

      With this downside protection why would any trader buy a futures contract instead of call?

      The potential to profit on a call option does not come without a cost. The seller or “writer” of the option will require compensation for the economic benefit given to the option owner. This payment is similar to an insurance policy premium and, is called the option premium. The buyer of a call option pays a premium to the seller of a call option.

      As a result of the added cost of the premium, the profit potential for a call is less than the profit potential of a futures contract by the amount of premium paid. The price of the future must rise enough to cover the original premium for the trade to be profitable. Moreover, options premiums are impacted by time decay and  changes in volatility (futures are not).

      The breakeven point for a call is the strike price plus the premium paid. So if you paid 4.50 points for a 100 call option, the breakeven is 104.50. The most you could lose is the premium or 4.50 points.

      Selling Calls

      For every long call option buyer, there is a corresponding call option “writer” or seller. If you sell the call option, then you receive the premium in return for the accepting the risk, that you may need to deliver a futures contract, at a price lower than the current market price for that future.

      Option sellers have unlimited risk if the futures price continues to rise.

      Call sellers will profit as long as the futures price does not increase beyond the value of the premium received from the buyer.

      The breakeven point is exactly the same for the call seller as it is for the call buyer.

      Summary

      Call Buyers have protection in that their risk is limited to the premium they must pay for the call option.  The maximum risk of a call option is the premium paid. They can lock in the strike price and profit (should the underlying rise far enough) while risking only the upfront premium paid.


      Test Your Knowledge

      Related Courses
      /content/cmegroup/en/education/courses/introduction-to-options/explaining-call-options-short-and-long
      • {{ course.name }}
      Previous Lesson
      Next Lesson
      Course Overview
      Get Completion Certificate
      Previous Lesson Next Lesson
      • YouTube
      • Twitter
      • Facebook
      • LinkedIn
      • Instagram
      • Rss

      CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
      Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

      © 2021 CME Group Inc. All rights reserved.

      Disclaimer  |  Privacy Policy  |  Cookie Policy  |  Terms of Use  |  Data Terms of Use  |  Modern Slavery Act Transparency Statement  |  Report a Security Concern