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 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 financial definition of call option https: Call option An option contract that gives its holder the right but not the obligation to purchase a specified number of shares of the underlying stock at the given strike price , on or before the expiration date of the contract.
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.
References in periodicals archive? The right to exercise the Call Options is conditional upon that the Call Option Holders are continuously employed in Cameron Tec at the time when the Call Options are exercised and that they adhere to a shareholders' agreement with Orc Group in which the ownership of CameronTec is regulated.
Revisions to the Descriptions of the Option Writing Strategies of: In view of a potential initial public offering of KrisEnergy IPO , Devan and the Seller have on 28 June agreed to amend certain terms of the Call Option , principally, the exercise price of the Call Option and following such amendment, Devan has exercised the Call Option at the IPO Exercise Price, subject to the IPO occurring by 15 August and an earn-out mechanism in which Devan agrees to pay to the Seller the difference between original exercise price and the IPO Exercise Price, subject to certain conditions being met post-listing.
Investment in KrisEnergy Ltd. The issue is worth USDm, and the call option is to be exercised next month. One of the simplest strategies involves buying a call option. This exception applies if the call option is transferred with the loan or if a portion of the call option is transferred with a corresponding portion of the loan.
S stock call options as a second class of stock. Selling covered equity call options is probably most appropriate for investors who can and will sell their stock at the option's strike price and who want the opportunity to enhance their income from a stock position. Got your wealth tied up in your own company? ESOs are long-dated call options granted to employees by their company to purchase shares of the company's common stock.
Yes, employee stock options can be valued: In fact, some experts say they can be modeled much like mortgage securities. In this context, a call option is an option to buy a futures contract.More...