A call investment option is a financial agreement involving two parties, the buyer and the seller of this kind of investment option. Usually, it is simply labelled a “call”. The buyer of the choice has the right but not the obligation to buy a settled quantity of a particular commodity or financial instrument from the seller of the option at a specific time for a certain price. The seller is bound to sell the commodity or financial instrument if the buyer should decide to buy. For getting this liberty the buyer pays a premium.
As the buyer of a call investment option wants the price of the underlying mechanism to rise in the future; the seller either desires that it will not, or is willing to give up some of the upside profit from a price rise in return for the premium plus maintaining the opportunity to make a gain up to the strike price.
Call investment options are most profitable for the buyer when the underlying mechanism is going up, making the price of the underlying mechanism nearer to the strike price. When the prices of the underlying instrument surpass the strike price, the choice is said to be in the money.
The initial transaction in these circumstances- buying/selling a call option – is not the restocking of a physical or financial asset – the underlying instrument. Instead, it is the granting of the privilege to buy the underlying asset, in exchange for the investment option price or gratuity.
Precise specifications may vary depending on option style. A European call investment option permits the holder to exercise, to buy, the option only on the delivery date. An American call option permits exercise at any time during the life of the option.
Also Read: What is Active and Passive Investing?
Call investment options can be purchased on numerous financial instruments other than stock in a corporation. Investment Options can be purchased at regular interest rates as well as on physical assets such as gold or crude oil. A call option should not be disoriented from a stock option. A stock option is the option to buy stock in a special company. And it is a right issued by a corporation to a special person, normally an employee, to purchase treasury stock. When a stock choice is exercised, new shares are issued. When a call option is exercised, if it involves shares, the shares are simply being transferred from one owner to another. Nor is any stock investment options traded on the open market.