When to use it?
You strongly believe a stock will rise over the coming weeks/months, but you want to cap your maximum risk at the premium paid. Ideal on a catalyst (earnings, FDA approval, etc.) with a clear direction.
When to avoid it?
A flat or bearish market. Options lose value over time (theta decay), especially in the last 30 days. If the stock stalls, you lose 100% of the premium.
How it works
You buy 1 contract = the right (not the obligation) to buy 100 shares at the strike before expiration. You pay the premium × 100 up front.
At expiration:
• If the stock is above the strike, you exercise → you buy below the market, gain = (price − strike − premium) × 100.
• If the stock is below the strike, the option expires worthless → you lose the premium × 100.
You can also sell the call before expiration to capture the rise in the premium (most people do this rather than exercise).
Concrete example
Stock XYZ at $100. You buy a call with strike 105, premium $3, 60 days to expiration.
Total cost: $3 × 100 = $300.
At expiration in 60 days:
• XYZ at $95 → option worth 0. Loss = $300 (the premium).
• XYZ at $105 → option worth 0 (at the money). Loss = $300.
• XYZ at $108 → option worth $3/share. Break-even. P&L = 0.
• XYZ at $115 → option worth $10/share. Gain = (10 − 3) × 100 = $700.
• XYZ at $130 → option worth $25/share. Gain = (25 − 3) × 100 = $2,200.
To win, the stock must exceed strike + premium ($108) at expiration.
Greeks to know
• Delta (typically 0.30 for an OTM call): you gain ~30¢ per $1 rise in the underlying.
• Theta (negative): you lose value each day that passes — accelerates in the last 30 days.
• Vega (positive): if implied volatility rises, your premium rises (even without the underlying moving).
• Gamma (positive): your delta accelerates as the stock approaches the strike.
So you want: an underlying that rises FAST (before theta kills you) and ideally with rising IV.
Approval level required
The long call is typically level 1 or 2 at most brokers (Questrade, IBKR, Wealthsimple). No high margin needed — it's defined-risk.
To enable it with your broker: fill out the "options trading" form and indicate your experience. Most accounts are approved to buy calls/puts.
⚠ AMF disclaimer
Options are high-risk derivative products. Losses can exceed the capital initially committed (particularly for uncovered short positions). Polaris provides educational content only — this is not investment advice. Consult a registered advisor (AMF) before any decision and make sure you have the appropriate level of approval from your broker.