A call option is an agreement, between both the seller and the buyer of the option, to sell a specific asset at a pre-determined price on a given date in the future. If you hold an option to buy a stock at a given price, it means that you are holding a right, but it does not mean you actually have the ability to purchase the stock at that price.
The seller of a call option is not obligated to purchase the asset at the option gives him the right to sell at the agreed upon price at a later date. As long as he holds the option, he is entitled to exercise it whenever he wishes. The buyer of an option is also not obligated to purchase the asset at the option gives him the right to sell the asset at the agreed upon price at a later date. However, as the buyer he has the right to exercise the option if he so desires.
In a typical call option transaction, the seller is buying a right to sell a particular asset at a pre-determined price within a particular period of time. At the expiration of his call option the seller will lose his right to sell that particular asset at that price. Call option prices are determined by a number of factors, the most important of which is market volatility, which is basically the change in the price of assets relative to their underlying values.
Volatility can be calculated by taking the ratio of price change to the time the asset is valued. This is known as the implied volatility and can be used to calculate risk-free or cost effective trading opportunities for investors.
When an investor decides to purchase a call or put option to purchase or sell a specific asset, he is typically referred to as an options trader. Investors may buy the options at a discount from their current market value in order to maximize their profits. Some investors decide to purchase these types of call options because they believe it will provide them with a greater degree of protection for their investments, which will enable them to reap larger profits. Others choose to purchase these options to lock in a higher degree of their return on their investment for a longer period of time.
When an investor holds an option to buy or sell a particular asset, it is referred to as a forward option. These are usually preferred over a put option because they give the holder the right to sell the asset at a pre-determined price at a future date. in the future. Although there is some risk involved with these options, they are typically considered to be more secure than a put option.
When an investor purchases calls, he will have to pay a premium to cover the risk of loss that might result from an early cancellation of the option. The value of the premium paid in these options is referred to as the strike price of the option.
When an investor purchases put, they must pay a premium to cover the risk of loss that may result from the inability of the seller to deliver the option contract. The strike price of a put option is the price that the buyer pays for the right to buy or sell the asset at the time set forth in the option contract. For example, a put option gives the buyer the right to buy or sell a particular asset at a certain price at a certain time in the future. The reason that put options are called “put” options is because the asset to be purchased or sold is generally not held by the seller.