An option contract
in which the holder
has the right (but not the obligation) to buy
the underlying asset
at an agreed-upon price
on or before the expiration date
of the contract, regardless of the prevailing market price of the underlying asset. One buys
a call option if one believes the price for the underlying asset will rise by the end of the contract. If the price does rise, the holder may buy and resell the underlying asset for a profit
. If the price does not rise, the option expires and the holder's loss
is limited to the price of buying the contract. Call options may be used on their own or in conjunction with put options
to create an option spread
in order to hedge risk
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Buying a call option gives you, as owner, the right to buy a fixed quantity of the underlying product at a specified price, called the strike price, within a specified time period.
For example, you might purchase a call option on 100 shares of a stock if you expect the stock price to increase but prefer not to tie up your investment principal by investing in the stock. If the price of the stock does go up, the call option will increase in value.
You might choose to sell your option at a profit or exercise the option and buy the shares at the strike price. But if the stock price at expiration is less than the strike price, the option will be worthless. The amount you lose, in that case, is the premium you paid to buy the option plus any brokerage fees.
In contrast, you can sell a call option, which is known as writing a call. That gives the buyer the right to buy the underlying investment from you at the strike price before the option expires. If you write a call, you are obliged to sell if the option is exercised and you are assigned to meet the call.
call option see OPTION.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
call option see OPTION.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
call optionSee call provision.
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