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Writing or Selling a Call Option is when you give the buyer of the call option the right to buy a stock from you at a certain price by a certain date. In other words, the seller (also known as the writer) of the call option can be forced to sell a stock at the strike price. The seller of the call receives the premium that the buyer of the call option pays. If the seller of the call owns the underlying stock, then it is called writing a covered call.. If the seller of the call does NOT own the underlying stock, then it is called writing a naked call.. Obviously, in this instance it is naked because the seller does not own the underlying stock. The best way to understand the writing of a call is to read the following example.
In your example, buying a $4 strike call option on a stock that is trading at $7 would be worth at least $3 in premium, let's say $3.50. Buying 1 call option contract would cost you $350 (100 shares) and this option's price changes are likely to move in line with the stock. long call option is the simplest way to benefit if you believe that the market will make an upward move and is the most common choice among first time investors.