A call investment option is a financial contract involving two parties, the buyer and the seller of this type of investment option. Often it is simply labeled a “call”. The buyer of the option has the right but not the obligation to buy an settled quantity of a particular commodity or financial instrument from the seller of the option at a certain time for a certain price. The seller is obligated to sell the commodity or financial instrument if the buyer should decide to buy. For getting this right the buyer pays a premium.
As the buyer of a call investment option wants the price of the underlying instrument to rise in the future; the seller either expects 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 retaining the opportunity to make a gain up to the strike price.
Call investment options are most profitable for the buyer when the underlying instrument is going up, making the price of the underlying instrument nearer to the strike price. When the prices of the underlying instrument surpass the strike price, the option is said to be in the money.
The initial transaction in...
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