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A call option writer makes money from the premium they received for writing the contract and entering into the position. This premium is the price the buyer paid to enter into the agreement. A call option buyer makes money if the price of the security remains above the strike price of the option.
For instance, 1 ABC 110 call option gives the owner the right to buy 100 ABC Inc. shares for $110 each (that's the strike price), regardless of the market price of ABC shares, until the option's expiration date.
There are two ways to write a call option ? sell covered calls or sell naked calls. When you write a covered call, you are selling an option on an underlying stock that you own. Writing a naked call means you are selling an option on a stock you do not currently own.
The biggest advantage of buying a call option is that it magnifies the gains in a stock's price. For a relatively small upfront cost, you can enjoy a stock's gains above the strike price until the option expires. So if you're buying a call, you usually expect the stock to rise before expiration.
Call options are a type of derivative contract that gives the holder the right but not the obligation to purchase a specified number of shares at a predetermined price, known as the "strike price" of the option.