Call Option
A call option is a financial instrument that gives the holder the right, but not the obligation, to buy an underlying asset at a predetermined price within a specified period of time. The buyer of the call option pays a premium to the seller for the right to purchase the asset at the predetermined price. If the buyer exercises the option, the seller must sell the asset at the predetermined price. If the buyer does not exercise the option, the seller keeps the premium.
History of the Call Option
The concept of a call option has been around since the 17th century. The Dutch East India Company used options to hedge against the risk of price fluctuations in the commodities they traded. In the 19th century, call options were used by speculators to speculate on the price of commodities. In the 20th century, call options were used by investors to hedge against the risk of price fluctuations in stocks and other securities.
In 1973, the Chicago Board Options Exchange (CBOE) was established, and call options began to be traded on a regulated exchange. This allowed investors to buy and sell call options in a regulated environment. Since then, call options have become a popular tool for investors to hedge against the risk of price fluctuations in stocks and other securities.
Comparison Table
| Call Option | Put Option |
|---|---|
| Gives the holder the right to buy an asset | Gives the holder the right to sell an asset |
| Buyer pays a premium to the seller | Seller pays a premium to the buyer |
| Buyer exercises the option to buy the asset | Seller exercises the option to sell the asset |
Summary
A call option is a financial instrument that gives the holder the right, but not the obligation, to buy an underlying asset at a predetermined price within a specified period of time. The buyer of the call option pays a premium to the seller for the right to purchase the asset at the predetermined price. If the buyer exercises the option, the seller must sell the asset at the predetermined price. If the buyer does not exercise the option, the seller keeps the premium. For more information about call options, you can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Put Option
- Option Premium
- Option Strike Price
- Option Expiration Date
- Option Moneyness
- Option Greeks
- Option Spread
- Option Straddle
- Option Strangle
- Option Butterfly
