How it works
The buyer of a call option can profit by exercising the right if the underlying asset's price rises above the strike price, acquiring the asset at a lower price than the market. Conversely, if the price falls below the strike price, the buyer can simply let the right lapse, in which case the loss is limited to the premium paid.
What to keep in mind
Call options are used in trades that bet on a market rise, as well as in strategies such as the "covered call," where they are sold against an existing stock position to generate income. Because the seller can, in theory, face a substantial loss, the risk structure differs significantly between buyers and sellers, so caution is warranted.