(FINANCE) a financial derivative
that entitles the owner to buy a fixed amount of X for a fixed price (the strike price
) by a specific date in the future. If this is an equity derivative
, X is referred to as the underlying stock
A call option allows one to reap profits from an increase in price of a traded item without actually buying the asset itself. Since it is an option
, one is not compelled to exercise it if it not advantageous to do so; however, the party that initially issued the option (i.e., the one who "wrote" the option) is legally obligated to honor the option.
When the strike price of a call option is more than the current market price of the asset (i.e., its "spot price
"), then it has no intrinsic value and is "out of the money