What Are Call Options?
Call options are a type of financial derivative that gives the holder the right, but not the obligation, to buy an underlying asset at a predetermined price within a specified time frame. Call options can be used as part of hedging strategies or for speculation purposes. They provide investors with leverage and allow them to benefit from increases in stock prices without having to put up all of the money needed to purchase shares outright.
When buying call options, investors pay what is known as a premium which is essentially an upfront cost for purchasing the option contract. The amount paid will depend on factors such as how far away expiration date is and how volatile the underlying asset’s price has been recently. If exercised before expiration, holders will receive their share of profits based on any increase in value since they purchased it minus any premiums paid initially. On expiry if there was no profit made then only losses incurred would be those associated with paying out premiums when entering into contracts originally.