Call Option

Submitted by Share Trading on 17 March, 2010 - 16:22

Call option provides the right to a trader to buy an instrument (say for example stocks) at a predetermined price at or before the expiry date. However, exercising this option is not an obligation. It depends on the trader whether he will go for the call option or not.

If a buyer assumes that the price of a particular stock will rise in the future, he can utilise the call option to make profit from that stock. On the other hand, the seller also enjoys his share of profit through the premium that he receives for that stock which the buyer pays him immediately. One of the main advantages that a seller enjoys in this case is that he makes profit from the transaction even if the share price falls.

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