call option
Noun 1. A financial contract granting the right, but not the obligation, to purchase a specific asset (such as a stock, index, or commodity future) at a predetermined price (the strike price) on or before a specified expiration date. The buyer of a call option anticipates that the price of the underlying asset will rise above the strike price before the option expires.
A "call option" is a standard term in finance and investing. It is the opposite of a "put option." The holder (buyer) of a call option has the right to exercise the option and buy the asset if it is profitable to do so. The seller (writer) of a call option has the obligation to sell the asset at the strike price if the buyer chooses to exercise the option.
- An investor buys a call option on Company XYZ stock with a strike price of $50, expiring in one month. If the stock price rises to $60, the investor can exercise the option to buy shares at $50 and immediately sell them at the market price of $60 for a profit.
- Trading call options can be a way to speculate on a stock's price increase with less capital than buying the stock outright.
- The value of the call option increases as the price of the underlying asset rises.
- "In the money" (ITM): Describes a call option where the current market price of the underlying asset is the strike price. It has intrinsic value.
- "Out of the money" (OTM): Describes a call option where the current market price is the strike price. It has no intrinsic value, only time value.
- "At the money" (ATM): Describes a call option where the current market price is approximately equal to the strike price.
- Call (noun, informal): A common shortened form of "call option" in trading contexts. (e.g., "I bought calls on that tech stock.")
- Long call: The position of buying a call option.
- Short call: The position of selling (writing) a call option.
- Put option (noun): The opposite financial contract, granting the right to sell an asset at a set price.
- Buy option (less common)
- Exercise a call option: To use the right to buy the underlying asset at the strike price.
- Write a call option: To sell and create a new call option contract, taking on the obligation to sell the asset if exercised.
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the option to buy a given stock (or stock index or commodity future) at a given price before a given date
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an option to buy
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