The Call Option
A call is the right to buy 100 shares of stock at a fixed price per share, at any time between the purchase of the call and the specified future deadline. This time is limited. As a call buyer, you acquire the right, and as a call seller, you grant the right of the option to someone else. [caption id="attachment_12408" class=" call-option-img" align="alignright" width="370px"] The call option.[/caption] Let's walk through an illustration and apply both buying and selling as they relate to the call option.
- Buyer of a call: When you buy a call, you hope that the stock will rise in value, because that will result in a corresponding increase in value for the call. This will create higher market value in the call, which can be sold and closed at a profit; or the stock can be bought at a fixed price lower than the current market value.
- Seller of a call: When you sell a call, you hope that the stock will fall in value, because that will result in a corresponding decrease in value for the call. This will create lower market value for the call, which can then be purchased and closed at a profit; or the stock can be sold to the buyer at a price above current market value. The order is the reverse from the betterâ