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Call Options
A
call option is a type of option
contract between two parties (a 'call') that gives
the buyer, the option to purchase and underlying security, normally
100 shares of a stock at a predetermined, fixed price - known
as
the strike price (exercise price). For this right, the buyer
pays an option
premium.
The seller of the call has an obligation to sell the underlying security at the strike price, on or before the expiration, if he or she is assigned (exercised against).
The obligation with the Call is unlike with the futures contract where both the buyer and seller are
obligated to exercise the contract.
The uncovered
call option, which also goes by naked call, is a
short call option position where the writer does not have ownership backing in
the underlying security and there is likewise a very high degree of risk enabled
by broker extended margins.
See how a put option varies
in its basic makeup with the call as well as puts
and calls considered alongside each other.
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