Short Call

"Hi, honey. Home at 6. Pickin' up chicken." That's a short call, but it has nothing to do with this term.

A call offers its holder the right, but not the obligation, to buy a certain underlying asset. There are two sides to that arrangement. One side buys the call; they have the option to purchase the underlying asset at a pre-set price. Meanwhile, on the other side of the deal, there is a party who wrote the call option. That investor has granted the right for someone else to buy the asset. To put it another way, they're agreeing to sell the asset at the pre-set price.

The short call exists on that side of the equation. It represents the writing of the call option.

You write a call for 100 shares of AAPL at $210, expiring in two months. You sell the option to someone else. Now you owe them those 100 share two months from now, if they choose to exercise the option.

Sometimes, people who sell these options already have the underlying asset in hand. In that situation, you'd already own 100 shares of the AAPL stock...you just want to use the option to raise a little money. If shares rise to the point where the call option gets exercised, it's no big deal. You have to sell the stock at the agreed-upon price, which might be below the current market value. But you still made a profit on the exchange.

Other times, the investor doesn't already own the stock. This situation represents a classic short call. Here, you really don't want the shares to rise above the strike price. You sell the AAPL call with a strike price of $210 and shares rise to $225; the buyer exercises the option. Now you have to buy 100 shares at $225 just to sell them to someone else at $210. Losing proposition.

For that reason, a short call is basically a bet that the stock will stay below the contract's strike price. The investor is looking to earn a premium from selling the option, but they have their fingers crossed that it never gets exercised.