Call options are contracts that provide the buyer with the literal option to buy a cryptocurrency for a specific “strike” price within a specific time period. Because it is an option, the buyer has no obligation to exercise their right to buy. They are profitable when the underlying coin or token experiences a price increase.
Call options are the opposite of put options, which provide the buyer with the right to sell a cryptocurrency for a specific price within a specific time frame, and are profitable when the underlying coin or token decreases in price.
Long vs. short call options
One can take long or short positions with call options:
- Buying a call option represents a long position.
- Selling (or “writing”) a call option represents a short position.
Long call options are primarily used to allow the holder the potential opportunity to buy a cryptocurrency at a cheaper price in the future. As is the case with all options, there is a premium involved in the purchase. This premium represents the most one can lose on a long call option, while profit potential is theoretically unlimited.
Short call options are primarily used for covered calls by the contract seller — which means they own the underlying cryptocurrency. This essentially hedges against losses incurred from the underlying coin or token dropping in price.
Call options are frequently used for speculation purposes and may comprise a part of various options trading strategies.