Call options

Call options

Subject: Economy

Context: The selling of call options has reached a fever pitch hitting a new record this week, indicating low possibility of a sharp market crash. The pace of trading in index options is seen as a barometer of stock market sentiment.

Concept:

Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period. The stock, bond, or commodity is called the underlying asset. A call buyer profits when the underlying asset increases in price.

A call option may be contrasted with a put, which gives the holder the right to sell the underlying asset at a specified price on or before expiration.

• A call is an option contract giving the owner the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time.
• The specified price is known as the strike price and the specified time during which a sale is made is its expiration or time to maturity.
• Call options may be purchased for speculation, or sold for income purposes. They may also be combined for use in spread or combination strategies.