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How call options work from trade entry to expiration
Yahoo Finance explains that a call option gives the buyer the right, but not the obligation, to buy shares at a set price called the strike before the contract expires. The buyer pays a premium upfront, while the seller, also known as the writer, collects that premium and takes on the obligation to sell shares at the strike price if the buyer exercises.
The outlet says the call buyer typically comes out ahead only if the stock rises above the strike price by more than the premium paid. If the stock does not rise enough, the buyer can let the contract expire, in which case the maximum loss is limited to the premium already paid.
Yahoo Finance also walks through the seller's incentives and risk. The writer generally wants the stock to finish at or below the strike to keep the premium, but if exercised, a seller who does not already own the shares must deliver 100 shares at the strike price, regardless of how much higher the stock has climbed.
Using an example from the article, Yahoo Finance notes that standard stock call contracts cover 100 shares. It illustrates how a $5-per-share premium would translate to $500 per contract, showing how the up front payment and the strike price shape the outcome for both sides.