Call Option

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Description of Call Option. Explanation.

 

Definition Call Option. Description.


A Call Option is an option that gives the buyer the right, but not the obligation, to purchase the underlying stock, commodity, or other financial instrument at a set time and strike price from the writer (seller) of the call option. Normally, one option contract for a stock confers the right to buy 100 shares of the underlying stock.


The writer must sell the commodity or financial instrument should the buyer so decide. The purchaser pays a premium (a fee) for this right.

The purchaser of a call option expects the price of the commodity/instrument to rise in the future; the writer expects that it will not, or he is willing to give up some of the upside (profit) from a price rise in return for the premium plus still having the opportunity to make a gain up to the strike price.


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Compare with: American-Style Option  |  European-Style Option  |  Put Option  |  Asian Option  |  Real Options  |  Futures Contract  |  Hedge  |  Warrant

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