Definitions for call option

This page provides all possible meanings and translations of the word call option

Princeton's WordNet

  1. call option(noun)

    an option to buy

  2. call option, call(noun)

    the option to buy a given stock (or stock index or commodity future) at a given price before a given date

Freebase

  1. Call option

    A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option. 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 from the seller of the option at a certain time for a certain price. The seller is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee for this right. The buyer of a call option purchases it in the hope that the price of the underlying instrument will rise in the future. The seller of the option either expects that it will not, or is willing to give up some of the upside from a price rise in return for the premium and retaining the opportunity to make a gain up to the strike price. Call options are most profitable for the buyer when the underlying instrument moves up, making the price of the underlying instrument closer to, or above, the strike price. The call buyer believes it's likely the price of the underlying asset will rise above the option's strike price by the exercise date. The buyer's maximum loss is limited to the option premium. The profit for the buyer can be very large, and is determined by how high the underlying instrument's spot price rises. When the price of the underlying instrument surpasses the strike price, the option is said to be "in the money".

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