What it is
A premium buys you the option to purchase 100 shares at the strike up to the expiry date. Nothing obliges you to use it. If the stock finishes above the strike the contract is worth the difference; if not, it expires and the premium was the whole cost.
It is the most common first options trade, because the shape looks ideal: a loss that cannot exceed what was paid and a gain with no ceiling. The catch is in what the premium pays for, which is time.
What has to happen for it to make money
The stock has to rise above the strike plus the premium, before expiry. Below the strike at expiry the call is worthless. Between the strike and the break-even it recovers part of its cost. Above the break-even every dollar of rise is a dollar of profit per share.
Rising volatility helps while you hold it, since a more nervous market pays more for the same call. Time hurts every day, and it hurts faster in the last few weeks, so a rise that arrives slowly can still leave the call worth less than it cost.
Once it is on
Most bought calls are sold before expiry rather than exercised. Selling collects whatever time value is left, which exercising throws away, and needs no cash to buy the shares. Buyers who want time on their side pick a later expiry and pay more for it; buyers who want a cheaper ticket pick a strike further out and need a bigger move to collect.
What goes wrong
Being right too late. A stock that rises a week after expiry pays nothing. Picking the direction is half the trade and picking the timing is the other half.
Overpaying for excitement. Calls cost the most when everyone expects a move, before earnings or after a big run. A rise smaller than the market priced in can still lose money, especially once the volatility drains out after the event.
Sizing like shares. A call controls 100 shares for a fraction of their price, and spending what you would have put into the shares on calls turns a correct view on the wrong week into losing all of it.
Pros and cons
- Pro: the premium is the full risk.
- Pro: no ceiling on the gain.
- Pro: exposure to 100 shares for much less money.
- Con: loses value every day the stock does not rise.
- Con: needs the move and the timing to both be right.
- Con: often expensive exactly when it looks most tempting.
In Restrike
The Log records a bought call by its dollar result and counts it in the win rate once closed. It is not scored against premium kept, a measure built for the seller's side. Imported read-only from your broker; Restrike never places a trade.