Call options are financial contracts that give an option buyer the right, but not the obligation, to purchase a stock, bond, commodity or other asset at a specific price, all of which is executed within a specific time-frame. The stock, bond or commodity is the underlying asset for the option.
The specific price is known as the strike price and the time frame in which the sale can be made is called the expiration time. Call options can be purchased for speculation or sold for income purposes. They can also be combined for use in spread or combination strategies.
To take an example, a single call option contract could give an investor the opportunity to buy 50 shares in a company at $10 with an expiration time of four months. Investors can choose between multiple expiration dates and strike prices. As the value of the company's shares rises, the price of the option contract goes up as well.
The call option buyer can hold the contract until the expiration date, or choose to sell the options contract at any point before then at the market price at that point in time. They can also wait for the expiration date and accept delivery of the 50 shares of stock.
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