Along with put options, call options are one of the two most frequently traded derivatives contracts. Call options give the holder the right, but not the obligation, to buy an underlying asset at a set price on a set date. The seller (or writer) of a call option receives a premium, which is paid by the buyer.
Call options are of great importance to both hedging and speculative strategies. They are, along with put options, the building blocks of complex option strategies such as collars. Options offer unrivalled flexibility for building a specific payout profile, but they require a serious understanding of pricing to trade effectively.
Call options can be bought or sold for different strike prices. Their cost will vary based on how out-of-the-money or in-the-money the call option is. These terms refer to whether an option has (ITM) or has not (OTM) crossed its strike price. Options trading very close to their strike price are known as ‘at the money’.
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