See how an option works.

A right with a price
and an expiration.

A call gives its buyer a right to buy at a specified strike price, under the contract's terms. A put gives its buyer a right to sell. The buyer pays a premium for that right.

In this example, imagine a call on a hypothetical company. The strike is US$100 and the premium is US$5 per share. With a 100-share multiplier, one contract costs US$500 before fees.

At expiration, a call's intrinsic value is the amount by which the underlying price exceeds the strike, or zero if it does not. Your P&L also accounts for the premium paid.