What Is a Call Option?
A call option is a financial contract that gives the buyer the right, but not the obligation, to purchase a stock at a specific price (the strike price) within a specific time period. Call options are used for both directional speculation and income generation through covered call writing.
Call Option Basics
One call option contract represents 100 shares of the underlying stock. Key terms to understand:
- Strike Price: The price at which you can buy the stock (call buyer) or must sell the stock (call writer)
- Expiration Date: The last day the option can be exercised
- Premium: The price paid to buy the option, or collected when selling it
- In-the-Money: When the stock price is above the strike price for a call
Covered Calls: The Income Strategy
The most popular income-generating use of call options is the covered call strategy. You own 100 shares of stock and sell one call option against those shares. You collect premium immediately and only give up upside beyond the strike price. This is the foundation of the Cash Flow Machine system.
Learn the complete covered call strategy →
Comparing Call Option Strategies
Different call option strategies serve different goals:
- Buying Calls: Directional bet that stock price will rise — unlimited upside, defined risk (premium paid)
- Selling Covered Calls: Income generation against owned shares — limited upside offset by premium collected
- Call Credit Spreads: Bearish/bearish-neutral strategy with defined risk
- Call Calendar Spreads: Time decay play selling near-term and buying longer-term calls
For a complete comparison of all options strategies, see our Options Strategies guide.