Call option
A call option provides a holder just the right to buy an underlying asset at an agreed-to price at a particular date in the future while a seller, receiving the option premium, assumes the obligation to sell these underlying assets at the strike price if the latter exercises his right.
The call option is one of the simplest and most common option strategies. Often this is the first strategy beginners use. Unidirectional strong price movements of an underlying asset can result in good profit for the buyer, who purchased the right to exercise this contract on the seller. The latter, writing the contract, gets the premium from the buyer and meets his obligations under the contract.
Let’s consider the elements of the following option quote:
ABC November 17, 2017 110 Call at $2,50
- ABC – that’s the stock name. Usually it’s represented 100 stocks
- November 17, 2017 – that’s the expiration date of the option
- 110 – that’s the strike price of an option
- Call – that’s the type of an option
- $2.50 – that’s the option premium. Since option contracts usually represent 100 stocks, the overall sum to pay in our case is $250 ($2.5*100)