What is a Call option?

Option

Option is a financial derivative which represents a contract to buy or sell, between two individuals or parties, an asset in future for a pre fixed price. The buyer gains the right and not obligation while seller is obliged to fulfill contract. The difference between pre fixed price and the present value of asset in market is called liquidity. Generally there are two types of options Exchange Traded options and Over the Counter options .Two styles of options, European style(It allows the buyer to buy exercise his right at specified time) and American style (It allows the buyer to exercise his right before or at expiry date ) are very common. There are two instruments to trade options which are known as Call option and Put option. The first question that appears into mind is “What is a call option?”

To tackle this question we have to go through a complete understanding of this instrument.

What is a Call option?

The call option is simply a financial option contract to buy an underlying asset, which could be a future or a commodity, between optioner and optionee on a specified time for a specified price. These two can be individuals or organizations. The buyer gains the right to buy an agreed quantity of a future or commodity at or before a certain time (the expiration date) for a certain price (the strike price) but he is not obliged to do so. The seller or writer of the option is obliged to sell the underlying asset to optioner or buyer .If he takes the decision to do so. The call option can be purchased on different financial instruments (stocks, futures, commodities ….etc.). The call option buyer is always optimistic about underlying asset's price hike and expecting to make a high profit from his investment. A call option is very hot in bull market. As buying call option indicates optimism, investor confidence, and high expectations.

Let's suppose in a market,  ABC company's Share price is  $5 .If you buy a call option for ABC it means that you are buying 1oo shares of ABC at 5*100=500 .w e also suppose that you have decided a premium of $1 per share .You have purchased this contract for a month .If on the due date price of share rises to $7 then you get a profit of $200 and IF price of shares goes down to $3 you will loose your premium which is $1 per share it means you loose $100.It is an example of binary call option.

In  options trading the most popular feature with increasing demand and  platforms is binary option trading .The call option is also major financial instrument  of binary options trading.

Binary options call option

The binary option call option is a trade where buyer is expecting price rise during the period of buying and expiration. The binary call option rewards when price is above strike price on maturity date and if it is under strike price there is no payment. The binary option call option is a short term trade. It is a successful strategy in bull market but fluctuations are not out of question in this situation. Binary option is different from standard option in its payout profile. The terms which are used to define binary option are commodity, underlying asset, maturity date, and security price. These options are traditionally traded in OTC markets. The binaries or digitals are now available in exchanges for an upfront premium payment.  The binary options are popular in foreign currency markets, traded on inflation figures and these are also used to hedge weather events.

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