What is a Call Option?

Answer:
A call option is an option – but not an

obligation – to buy a security such as a stock, bond, or commodity at a specific price during a specific time period. This option gives you the right to call in and purchase an asset at a predetermined price. Later, you will profit when the asset’s price increases in value.

Why would you want to exercise a call option? Call options give you the opportunity to hedge your existing investments. If you are buying call options, you are hoping that the asset will increase in value. On the other hand, those who sell call options have the opposite hope. They are hoping the value will decrease.

Because it’s an option, you are not obligated to do anything. You reserve the right to exercise the option should it make sense for your situation but you aren’t required to do so. You can also let the call option expire, doing nothing whatsoever. It all depends on your objectives and theories as to how the stock price may move.