What is a Call Option

What is a Call Option

A Call option gives the buyer the right but not the obligation to purchase an underlying asset at a specific price for a specific time-period. The simplest method of buying stock is through the market order. This is an order to buy or sell a stated amount of a security at the most advantageous price obtainable after the order reaches the trading floor. A limit (or limited) order is an order to buy or sell a stated amount of a security when it reaches a specified price or a better one if it is obtainable after the order comes to the trading floor. In the Amsterdam market, “middle price” is used. An investor who gives a limit order before the opening will have it executed at the day's median level, or at a price that is better than the limit, whichever is found to be more advantageous to the client.

There are other more specialized types of orders in a Call option. A stop order or stop-loss order is an order to purchase or sell a security after a designated price is reached or passed, when it then becomes a market order. It differs from the limit order in that it is designed to protect the customer from market reversals; the stop price is not necessarily the price at which the order will be executed, particularly if the market is changing rapidly. This type of order does not lend itself to the London jobbing system.

An important method of trading in stock is through the buying and selling of options. The most common option contracts are puts and calls. A put is a contract that permits the holder to deliver to the purchaser a specified number of shares of stock at a fixed price within a designated period of time, say six months; a call entitles him to buy shares from the seller within a given period. For example, a person who buys a stock hoping to sell it later at a higher price may also buy a put as a hedge against a fall in price. The put enables him to sell the stock at the price for which he bought it. If the stock rises he need not use the option and loses only the price of its purchase.

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