Call options

Understanding Call Options

A call option gives the holder the right to buy 1 token at the strike price up until the expiration date.

For example, a single call option contract may give a holder the right to buy 1 UNI token at $50 up until the expiration date six months later. As the value of UNI goes up, the price of the option contract goes up, and vice versa. The call option buyer may hold the contract until the expiration date, at which point they can take delivery of the 1 UNI token.

You pay a fee to purchase a call option, called the premium. It is the price paid for the rights that the call option provides. If at expiration the underlying asset is below the strike price, the call buyer loses the premium paid. This is the maximum loss.

Value at expiration

If the underlying asset's market price is above the strike price at expiration, the profit is the difference in prices, minus the premium.

For example, if UNI is trading at $56 at expiry, the option contract strike price is $50, and the options cost the buyer $2, the profit is $56 - ($50 + $2) = $4.

Now, if at expiration UNI is trading below $50, obviously the buyer won't exercise the option to buy the token at $50 a piece, and the option expires worthless. The buyer loses $2 for each contract they bought.