A call option is an option contract that gives the owner of a security the right to buy a corporation’s stock at a specific price within a stated time period. Investors purchase call options when they think a stock will appreciate in value.
What is a call option?
- Investors in options, or option holders, will profit from calls when the share price of the asset exceeds the strike price plus the option’s premium.
A call option is a type of option contract that gives the holder the right to buy a specific number of shares at a specific price known as the strike price. The period when a holder may execute their call is defined by an expiration date.
By purchasing a call option, option holders can profit by speculating on the price of the underlying asset. For example, consider a call option for Company A’s stock with a strike price of $10. If the share price of Company A rises to $15, then the holder will profit from their option by $5 minus the option’s premium, which is the cost of the option contract. When the share price exceeds the strike price and the premium, the holder will profit from exercising the contract.