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 - AvaTrade
Why We Chose AvaTrade
AvaTrade is a leading forex and CFD broker, established in 2006 and regulated across 9 jurisdictions. Over 400,000 users have signed up with the broker which processes over 2 million trades each month. The firm offers multiple trading platforms, including MT4, MT5, and a proprietary WebTrader. 1250+ financial instruments are available for day trading, alongside a comprehensive education center and multilingual customer support.
"AvaTrade offers the full package for short-term traders. There is powerful charting software, reliable execution, transparent fees, and fast account opening with a low minimum deposit."
- DayTrading Review Team
- Instruments: CFDs, Forex, Stocks, Indices, Commodities, ETFs, Bonds, Crypto, Spread Betting
- Regulator: ASIC, CySEC, FSCA, ISA, CBol, FSA, FSRA, BVI, ADGM
- Platforms: WebTrader, AvaTradeGO, AvaOptions, MT4, MT5, AlgoTrader, TradingCentral, DupliTrade
- Minimum Trade: 0.01 Lots
- Leverage: 1:30 (Retail) 1:400 (Pro)
Pros
- The broker offers reliable 24/5 multilingual customer support with fast response times during testing
- WebTrader is well-suited to beginners and features a strong suite of technical analysis tools and market research for day traders
- AvaTrade is a heavily regulated and trustworthy broker with licenses from the ASIC, CySEC and more
Cons
- There’s an above-average $50 inactivity fee after three months, though this won't impact active day traders
- It’s a shame that there are no rebate schemes for serious traders looking for additional perks - CMC Markets would be a better choice here
- Traders from the US are not accepted
#2 - Deriv.com
Why We Chose Deriv.com
Deriv.com is a low cost, multi-asset broker with over 2.5 million global clients. With just a $5 minimum deposit, the firm offers CFDs, multipliers and more recently accumulators, alongside proprietary synthetic products which can't be found elsewhere. Deriv provides both its own in-house charting software and the hugely popular MetaTrader 5.
"Deriv.com will suit day traders looking to make fast-paced trades using CFDs and multipliers with high leverage up to 1:1000. The broker is also the industry leader in synthetic indices, which simulate real market movements and are available around the clock. "
- DayTrading Review Team
- Instruments: CFDs, Multipliers, Forex, Stocks, Indices, Commodities
- Regulator: MFSA, LFSA, VFSC, BFSC
- Platforms: Deriv Trader, MT5
- Minimum Deposit: $5
- Minimum Trade: 0.01 Lots
- Leverage: 1:1000
Pros
- Traders can use multipliers between 1 and 30, with take profit, stop loss and deal cancellation parameters
- Deriv bolstered its short-term trading opportunities in 2024 with accumulator options on simulated indices featuring up to 5% growth rates
- Beginners and experienced day traders can access a good range of 20+ technical indicators in Deriv Trader vs 30+ in MT5
Cons
- The range of 100+ assets trails some competitors such as Quotex which offers 400+
- There's no loyalty program or rebate scheme for high volume traders
- There are limited copy trading tools and analysis features compared to alternatives like IQ Cent
#3 - CityIndex
Why We Chose CityIndex
City Index is an established and award-winning forex, CFD and spread betting broker with top-tier global regulation, including in the UK (FCA) and Australia (ASIC). With 30+ years in the industry, 13,500+ instruments and 24/5 customer support, City Index is a solid pick for aspiring traders.
"City Index is best for new and intermediate traders looking for a wide selection of assets on user-friendly platforms."
- DayTrading Review Team
- Instruments: CFDs, Forex, Stocks, Cryptos, Options, Commodities, Bonds
- Regulator: ASIC, FCA, MAS
- Platforms: MT4, TradingView, TradingCentral
- Minimum Deposit: $0
- Minimum Trade: 0.01 Lots
- Leverage: 1:30 (Retail), 1:50 (Accredited Investor), 1:200 (Sophisticated Investor), 1:300 (Wholesale Investor), 1:400 (Professional Trader). Varies with jurisdiction.
Pros
- No minimum deposit to get started
- Industry-leading platforms including MT4, plus access to cutting-edge third-party tools like TradingView
- Tight spreads from 0.5 pips on EUR/USD and competitive commissions on CFD shares
Cons
- $15 monthly inactivity fee
- US traders not accepted
- No Islamic account for Muslim traders
#4 - FOREX.com
Why We Chose FOREX.com
Founded in 1999, FOREX.com is now part of StoneX, a financial services organization serving over one million customers worldwide. Regulated in the US, UK, EU, Australia and beyond, the broker offers thousands of markets, not just forex, and provides excellent pricing on cutting-edge platforms.
"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: CFDs, Forex, Stocks, Cryptos, Futures, Options, Commodities
- Regulator: NFA, CFTC, CIRO, FCA, CYSEC, ASIC, SFC, FSA, MAS, CIMA
- Platforms: MT4, MT5, TradingView, eSignal, AutoChartist, TradingCentral
- Minimum Deposit: $100
- Minimum Trade: 0.01 Lots
- Leverage: 1:200 (Retail), 1:500 (Pro)
Pros
- The in-house Web Trader continues to shine as one of the best-designed platforms for aspiring day traders with a slick design and over 80 technical indicators for market analysis.
- FOREX.com offers industry-leading forex pricing starting from 0.0 pips, alongside competitive cashback rebates of up to 15% for serious day traders.
- Alongside a choice of leading platforms, FOREX.com offers a superb suite of supplementary tools including Trading Central research, SMART Signals pattern scanner, trading signals, and strategy builders.
Cons
- Demo accounts are frustratingly time-limited to 90 days, which doesn’t give you enough time to test day trading strategies effectively.
- Funding options are limited compared to leading alternatives like IC Markets and don’t include many popular e-wallets, notably UnionPay and POLi.
- FOREX.com's MT4 platform offers approximately 600 instruments, significantly fewer than the over 5,500 available on its non-MetaTrader platforms.
#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 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
- Minimum Deposit: $0
- Minimum Trade: 0.01 Lots
- Leverage: 1:30 (Retail), 1:250 (Pro)
Pros
- The ProRealTime advanced charting platform is free as long as certain modest monthly trading activity requirements are met
- The IG app offers a superb mobile trading experience with a clean design that helped it secure Runner Up at our Best Trading App award
- 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
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
- While there is negative balance protection in the UK and EU, there is no account protection or guaranteed stop losses for US clients
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.
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:
- 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.
- 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.
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
- Cost-effective – Call options trading requires less upfront capital than traditional stock investing. This gives you leveraging power as you can hold the same position as you would with the stock but only pay a small premium. Even if the stock price closes below the strike price, the call buyer would only lose out on the premium.
- Potential returns – When used effectively, the returns from call options trading can be higher than buying shares with cash.
- Risk – Call options trading is arguably less risky as it doesn’t require the same financial commitment. Call options are typically deployed to hedge positions and are safer than stocks.
- Strategy alternatives – Trading call options offers flexibility. Users have another investment vehicle to generate returns.
Cons Of Call Options Trading
- Liquidity – Some stock options may be less liquid, which makes identifying entry and exit points more difficult. Illiquid options can have low or no open interest, which may force the call buyer to hold the contract until the expiry date.
- Time-sensitive – A call buyer may choose to purchase an options contract as they don’t have the cash upfront to pay for the shares. However, they must be able to provide this capital by the expiration date on top of the cost of the premium.
- Long-term returns – Trading call options is typically a short-term technique. The buyer has to act by a deadline, even if the stock price does not reach the desired level. While options investors look to capitalise on near-term price movements, long-term stock investors can wait years for their stock to appreciate.
- Availability – Call options trading is not as ubiquitous as other popular forms of trading, such as forex investing. Fewer brokers and trading platforms offer call options trading.
How To Start Call Options Trading
We’ve listed some popular call options trading strategies below.
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.