Call option

This article is about financial options. For call options in general, see Option (law).
Profits from buying a call.
Profits from writing a call.

In finance, a call option, often simply labeled a "call", is a contract between the buyer and the seller of the call option to exchange a security at a set price.[1] The buyer of the call option has the right, but not the obligation, to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at or before a certain time (the expiration date) for a certain price (the strike price). This effectively gives the owner a long position in the given asset.[2] The seller (or "writer") is obliged to sell the commodity or financial instrument to the buyer if the buyer so decides. This effectively gives the seller a short position in the given asset. The buyer pays a fee (called a premium) for this right. The term "call" comes from the fact that the owner has the right to "call the stock away" from the seller.

  1. ^ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 288. ISBN 0-13-063085-3.{{cite book}}: CS1 maint: location (link)
  2. ^ Natenberg, Sheldon (1994). Option volatility and pricing strategies : advanced trading techniques for professionals ([2nd ed., updated and exp.] ed.). New York: McGraw-Hill. ISBN 0-585-13166-X. OCLC 44962925.