Call option In Stock Market

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The terms in financial market are often related on how to make profit in a financial market. The main aim of buyers and sellers here is to make profit. There can be agreements between the buyers and the sellers on how to interact in this market. There hence can be two perspectives for everything including a buyer’s perspective and a seller’s perspective.

Call option is such a contract between a buyer and a seller in a financial perspective. This is often referred to as a call. The buyer has the right to buy a commodity in a fixed amount from the seller in a particular option for a price as fixed by the option in a particular time. This right must not be treated as a mere obligation but it is the privilege of the buyer to get these commodities as per the details of the option.

In such a call option, the seller has the duty to sell the commodity at that fixed price and time to the buyer. He is obligated to perform this task. The buyer pays a fee often called by the name premium for this commodity. From the buyer’s perspective, the buyer always wants the price of the commodity he buys to increase in future. But the seller’s expectation will be just opposite that the price has no chance of increase.

Buyer always looks forward for an increase in the price of the commodity. He wants it to be closer to the strike price. In cases where the price crosses the strike price, the option will be said to be “in money”. The first step transaction in this option call is not a supply of a financial asset or commodity. It is rather giving away the right to buy the commodity in return of a price amount known by the name premium.

The working of the call option might depend on the style in which it is performed. In European style, the call option can be bought only on the date of expiration of the option. But an American option will allow you to buy the option at any time provided it falls in the life time of the option.

Users can get call options for several other commodities apart from the stocks. It is possible for buyers to get options on assets like gold and crude oil. But the most common example happens in a stock market. When the buyer feels that a price will go up in future, he plans to buy a stock. He pays a premium for this and gets the stock. The premium is never refundable. But he has the right to exercise the option even at a price that forms the strike price. From the seller’s perspective, the seller can receive the premium from the buyer. When the buyer buys the option, seller has to give that. On the other hand, if the buyer plans to buy the option at a later time, the seller can profit the premium.

 

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