Call Options Trading

Call options trading is a straightforward way to speculate on popular financial markets. Call buyers have the right to control shares they don’t own without the capital typically required to purchase a stock. The investment vehicle also offers an opportunity to leverage capital for greater returns. See our guide to call options trading with examples explained, strategies detailed, and their respective merits and drawbacks listed.

Call Options Trading Brokers

#1 - Forex.com

Why We Chose Forex.com

Forex.com boasts a global reputation with multiple awards and 20+ years experience. Regulated in the US, EU, UK and Canada they provide a huge range of day trading markets, not just forex, and offer competitive fees on a cutting-edge platform. The brand also provides a suite of additional tools, from performance analytics and SMART Signals to advanced charts and strategy builders.

"Forex.com remains a best-in-class brokerage for active forex traders of all experience levels, with over 80 currency pairs, tight spreads from 0.0 pips and low commissions. The powerful charting platforms collectively offer over 100 technical indicators, as well as extensive research tools."

- DayTrading Review Team
  • Instruments: Forex, Spot Metals
  • Regulator: NFA, CFTC
  • Platforms: MT4, MT5, TradingView, eSignal, AutoChartist, TradingCentral
  • Min. Deposit: $100
  • Min. Trade: 0.01 Lots
  • Leverage: 1:50

Pros

  • There's a VPS hosting solution for those using automated trading strategies
  • The $100 minimum deposit requirement makes the broker accessible for beginners
  • You can enjoy industry-leading forex pricing starting from 0.0 pips, plus fast execution speeds of less than 1 second

Cons

  • The $15 monthly inactivity fee is higher than some competitors, including XM which only charges $5
  • It's a shame that there's no copy trading platform for beginners or signal providers
  • The investment offering varies between countries

#2 - Interactive Brokers

Why We Chose Interactive Brokers

Interactive Brokers (IBKR) is a premier brokerage for experienced traders, providing access to 150 markets in 33 countries, along with a suite of comprehensive investment services. With over 40 years of experience, this Nasdaq-listed firm adheres to stringent regulations by the SEC, FCA, CIRO, and SFC, amongst others, and is one of the most trusted brokers for trading around the globe.

"Interactive Brokers is one of the best brokers for advanced day traders, providing powerful charting platforms, real-time data, and customizable layouts. Its superb pricing and advanced order options also make it highly attractive for day traders, while its diverse range of equities is still among the best in the industry."

- DayTrading Review Team
  • Instruments: Stocks, Options, Futures, Forex, Funds, Bonds, ETFs, Mutual Funds, CFDs, Cryptocurrencies
  • Regulator: FCA, SEC, FINRA, CBI, CIRO, SFC, MAS, MNB
  • Platforms: Trader Workstation (TWS), Desktop, GlobalTrader, Mobile, Client Portal, AlgoTrader, OmniTrader, eSignal, TradingCentral
  • Min. Deposit: $0
  • Min. Trade: $100
  • Leverage: 1:50

Pros

  • IBKR continues to deliver unmatched access to global stocks with tens of thousands of equities available from 100+ market centres in 24 countries.
  • The TWS platform has clearly been built for intermediate and advanced traders and comes with over 100 order types and a reliable real-time market data feed that rarely goes offline.
  • There's a vast library of free or paid third-party research subscriptions catering to all types of traders.; plus, you can enjoy commission reimbursements from IBKR if you subscribe to Toggle AI.

Cons

  • Support can be slow and frustrating based on tests, so you might find it challenging to reach customer service representatives promptly or encounter delays in resolving issues.
  • TWS’s learning curve is steep, and beginners may find it challenging to navigate the platform and understand all the features. Plus500's web platform is much better suited to new traders.
  • You can only have one active session per account, so you can’t have your desktop program and mobile app running simultaneously, making for a sometimes frustrating trading experience.

#3 - NinjaTrader

Why We Chose NinjaTrader

NinjaTrader is a US-headquartered and regulated brokerage that specializes in futures trading. There are three pricing plans to suit different needs and budgets, as well as ultra-low margins on popular contracts. The brand's award-winning charting software and trading platform also offers a high-degree of customization and superb technical analysis features.

"NinjaTrader continues to meet the demands of active futures traders looking for low fees and premium analysis tools. The platform hosts top-rate charting features including hundreds of indicators and 10+ chart types."

- DayTrading Review Team
  • Instruments: Forex, Stocks, Options, Commodities, Futures, Crypto
  • Regulator: NFA, CFTC
  • Platforms: NinjaTrader Desktop, Web & Mobile, eSignal
  • Min. Deposit: $0
  • Min. Trade: 0.01 Lots
  • Leverage: 1:50

Pros

  • NinjaTrader continues to deliver comprehensive charting software for active day traders with bespoke technical indicators and widgets
  • Low fees are offered, with $50 day trading margins & commissions from $.09 per micro contract
  • NinjaTrader is a widely respected and award-winning futures broker and is heavily authorized by the NFA and CFTC

Cons

  • There is a withdrawal fee on some funding methods
  • The premium platform tools come with an extra charge
  • Non forex and futures trading requires signing up with partner brokers

#4 - eToro USA

Why We Chose eToro USA

eToro is a social investing platform that offers short-term and long-term trading on stocks, ETFs, options and crypto. The broker is well-known for its user-friendly community-centred platform and competitive fees. With FINRA and SIPC oversight and millions of users across the world, eToro is still one of the most respected brands in the industry. eToro securities trading is offered by eToro USA Securities, Inc.

"eToro remains a top pick for traders looking for leading social investing and copy trading services. With a low deposit, zero commissions and an intuitive platform, the broker will meet the needs of newer day traders."

- DayTrading Review Team
  • Instruments: Stocks, Options, ETFs, Crypto
  • Regulator: SEC, FINRA
  • Platforms: eToro Trading Platform & CopyTrader
  • Min. Deposit: $10
  • Min. Trade: $10

Pros

  • The broker's Academy offers comprehensive learning materials for beginners to advanced-level investors
  • The $10 minimum deposit and straightforward account opening process means beginners can get started quickly
  • Investors can access Smart Portfolios for a more hands-off approach, covering a range of sectors and markets such as renewable energy and artificial intelligence

Cons

  • Average fees may cut into the profit margins of day traders
  • There's a narrower range of day trading instruments available compared to competitors, with only stocks, ETFs and cryptos
  • The proprietary terminal doesn't support trading bots and there are no additional stock market analysis tools

#5 - IG

Why We Chose IG

Founded in 1974, IG is part of IG Group Holdings Plc, a publicly traded (LSE: IGG) brokerage. The brand-US offers spread betting, CFD and forex trading across an almost unrivalled selection of 17,000+ markets, with a range of user-friendly platforms and investing apps. For 50 years, IG has maintained its position as an industry leader, excelling in all key areas for traders.

"IG continues to provide a comprehensive package with an intuitive web platform and best-in-class education for beginners, plus advanced charting tools, real-time data, and fast execution speeds for experienced day traders."

- DayTrading Review Team
  • Instruments: CFDs, Forex, Stocks, Indices, Commodities, ETFs, Futures, Options, Crypto, Spread Betting
  • Regulator: FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA
  • Platforms: Web, ProRealTime, L2 Dealer, MT4, AutoChartist, TradingCentral
  • Min. Deposit: $0
  • Min. Trade: 0.01 Lots
  • Leverage: 1:30 (Retail), 1:250 (Pro)

Pros

  • The proprietary web-based platform continues to caters to traders of all levels, with advanced charting tools and real-time market data useful for day trading
  • IG offers an extensive collection of professional and engaging educational resources, including webinars, articles, and analysis
  • The ProRealTime advanced charting platform is free as long as certain modest monthly trading activity requirements are met

Cons

  • Stock and CFD spreads still trail the cheapest brokers like CMC Markets based on tests
  • IG applies an inactivity fee of $12 per month after 2 years, deterring casual investors
  • IG has discontinued its swap-free account, reducing its appeal to Islamic traders

What Is A Call Option?

A call option is a financial contract between two parties to exchange an instrument at an agreed strike price on or before a set date. The instrument is based on an underlying asset, such as a stock, bond, commodity or crypto.

A call option gives you the right, but not the obligation, to buy the underlying asset at the agreed price and time. The seller is obliged to sell the underlying asset at the strike price should the buyer choose to exercise their option. A call option buyer pays a fee, otherwise known as a premium, for the right. Profits are earned if the underlying asset’s market value increases.

What is a call option

On the other hand, a put option gives the owner the right, but not the obligation, to sell the underlying asset at a strike price by a predetermined date. Here, the put buyer can earn a profit when the underlying asset’s value decreases.

As a derivative, options trading can be used to hedge a position, speculate on the movement of an underlying asset, or to provide leverage to holdings.

How Call Options Trading Works

A buyer will be presented with an options chain, which lists all available options contracts for that asset. Details on an options chain typically include the premium, strike price, expiration date and trading volume. One option generally represents a call block of 100 shares of the underlying stock. However, option prices are quoted per share. So the total price you pay would be the quoted premium x 100.

The buyer has the option to choose how long the contract is, though longer contracts are more expensive due to time value. The buyer has the right to exercise his option on or before the date of expiration. If you hold the option until the point of expiry, there are generally two potential outcomes:

  1. Call options that have a strike price above the stock price at the expiration date are considered ‘out of the money’. These are worthless and will simply expire. The buyer will forego his options and will only make a loss from the premium initially paid to the seller.
  2. If the strike price is below the stock price at the expiration date, it is considered ‘in the money’. The buyer can exercise the option to buy the shares at the strike price and the seller will be obliged to sell.

How cll options trading works

While a call options trading transaction takes place between two parties, a brokerage or retail trading platform typically facilitates the exchange. Call options trading is available on desktop devices and mobile apps at popular online brokers, including IG, Robinhood and Zerodha.

Options trading hours typically run from 09:30 am to 4:00 pm EST and are particularly popular in America. They are also popular in other countries. For example, in Australia, options trading generally takes place on the Australian Securities Exchange (ASX) while in the UK, though less popular, call options products are available on the FTSE.

Call Options Trading Example

Let’s suppose an investor owns 100 shares of stock. At that point in time, the stock is trading at $50 per share. However, they want to make an income on top of any dividends received from the stock. The investor also predicts that the shares are not likely to rise above $65 per share over the next month.

A call options chain shows that there is a $65 quoted option trading at $0.20 per share with expiration in one month. The investor decides to sell the option and immediately receives a $20 premium ($0.20 x 100) into their account. Call sellers expect a stock to remain flat or decline, where they can earn the premium, keep the shares and still earn the dividends.

Now let’s look at a buyer’s perspective. A call buyer will want to take advantage of a stock’s gain above the strike price on or before the expiration date. As a call buyer, you expect the price of the stock to rise before the expiration date. Again, the stock is trading at $50 per share at that time. You choose to buy a call on the stock with a $55 strike price for a $20 premium, which expires in a month. On the expiration date, the stock rises above the strike price at $65 per share and the buyer exercises their option. The call seller then has the obligation to sell the 100 shares at the strike price, and the buyer makes a profit.

Pros Of Call Options Trading

Cons Of Call Options Trading

How To Start Call Options Trading

We’ve listed some popular call options trading strategies below.

Call options trading strategies

1. Long Call

Bullish traders who are confident that a stock price will rise are likely to prefer the long call options trading strategy. This technique involves buying call options and waiting to see whether the share price rises above the strike price before the expiry. The risks with this strategy are mainly limited to the cost of the premium. Note, you can find user-friendly long call trading calculators online.

2. Covered Call

This strategy allows traders to maximise the profit potential of stocks already in their portfolio. Traders who take this position usually expect that the underlying asset won’t change or slightly increase in price. Covered call options sell the rights of a stock owner to someone else in exchange for cash. By selling a call option, they collect the premium for those shares, while benefiting from a rise in stock price. The risks involve the obligation to give up their shares, should the buyer exercise the option. Most brokers ensure the risks are explained before you purchase.

3. Intraday

Investors can also explore day trading call options. Here, call options traders usually open a position at the start of the day and close it by the end of the trading session. Intraday options traders will be particularly focussed on short-term volume and volatility. Their profits depend on price fluctuations that day with reduced liquidity cutting into profits.

4. Short Call Spread

A short call spread or bear call spread involves purchasing call options at a high strike price and then selling an equal number of call options at the same expiration date at a much lower strike price. Investors who employ this call options trading strategy expect the stock to move sideways or decline slightly. However it’s worth noting that this offers limited rewards and conservative profits.

5. Call Spread

This is also known as the bull call spread strategy. This involves purchasing call options at a specific strike price and expiration date. Investors will then simultaneously sell the same number of call options at the same expiration date at a higher strike price. The purpose of this strategy is to sell call options at a higher strike price to reduce the total cost of the trade. However, gains can be limited due to the net cost of the premiums for all call options. On the other hand, a put spread involves buying a put on a strike and selling another put for a lower strike price with the same expiry date.

6. Long Straddle

A long straddle strategy is where an investor buys a call and put option simultaneously. Both call and put options should have the same strike price and expiration date. Investors who choose this strategy seek to profit from bullish price movements on a stock that they already own.

Final Word On Call Options Trading

Call options trading provides the right to control an underlying asset without the need to own it or to have the cash to pay for it upfront. This opens up opportunities for traders to earn profits through various strategies. Use our beginners guide for call options trading above and check out our list of the best brokers.

FAQ

What Is A Covered Call Strategy In Options Trading?

A covered call strategy involves holding a long position in a stock and then selling, or writing, call options on that asset. The strategy is used by investors who believe stock prices aren’t likely to rise in the near term. They can gain profit from the premium charged to call buyers.

What Is Call Options Trading?

Call options trading relates to a financial contract between two parties. The call buyer pays a premium to the call seller for the right, but not the obligation, to buy an underlying asset by a specific expiration date for a set strike price.

Can You Do Call Options Trading On Trading 212?

As it stands, Trading 212 does not offer call options trading. Users on the Trading 212 community forum have called for the platform to introduce the product, but the broker is yet to change its offering in light of this.

Does Call Options Trading Have Margin Calls?

Some option positions don’t require margins, thus do not have margin calls. For example, positions on a long call strategy, covered calls, or covered puts. This is because the option to own the underlying stock serves as collateral.

Can You Exercise A Call Option Before The Expiration Date?

Early exercise is only possible on American-style options contracts, where the holder can exercise it at any point until the expiry. European-style options contracts only allow the holder to exercise this right on the expiration date.